Midwest Business Activity Shows Strong Bounceback

Business activity in the U.S. Midwest bounced back strongly in September after lurching lower last month, helped by accelerating new orders even as hiring slowed, a report showed on Friday.

The National Association of Purchasing Management-Chicago (search) business barometer rose to 60.5 from 49.2 in August to almost reverse the drop seen last month.

Economists had forecast the index at 51.0. A reading above 50 indicates expansion in the sector. Apart from August's somewhat mysterious slide, the index has been above that demarcation line separating economic growth from contraction since May 2003.

Analysts said the report showed that the U.S. economy had significant momentum going into Hurricanes Katrina and Rita over the past month.

"It certainly suggests that the storms' impact was temporary, as the Fed and others had suggested," said Rick Egelton, chief economist at BMO Financial Group (search) in Toronto.

New orders raced to 63.4 from 46.5 in August, and the order backlog rose to 54.3 from 45.7 last month.

Katrina "ironically may have had a positive effect on this index because of the big surge in new orders and, to a lesser extent, production," said Cary Leahey, senior managing director at Decision Economics.

The employment component of the index fell to 48.4 from 51.7 in August, suggesting hiring in the Chicago region might have hit a roadblock. Prices paid jumped to 76.3 from 62.9 as prices for fuel and other raw materials stayed high.

Many view the NAPM-Chicago as an industrial indicator, even though service sector companies are also polled, because the Chicago region, including parts of surrounding states, is relatively industrialized.

Analysts now look to Monday's national Institute for Supply Management (search) factory activity report for clearer direction after recent mixed news on manufacturing from several regional surveys.