Chicago Purchasing Managers Index Stronger Than Expected

Business expanded in the U.S. Midwest in May for the first time since February, figures released Friday showed, suggesting improvements in the manufacturing sector (search) as well as for the broader economy.

The National Association of Purchasing Management (search)-Chicago index rose to 52.2 in May from 47.6 in April. A reading below 50 indicates a contracting regional manufacturing sector, while a reading above 50 signals expansion.

Economists polled by Reuters had forecast the May index at 48.8.

"Well it's one of the first pieces of really good news that we had in a long time," said Carl Tannenbaum, chief economist with LaSalle Bank.

"I think we have all been hungry for signs that we might be turning the corner regarding the U.S. economy" he said, "And this might be one sign that if we are not all the way around the corner then at least we are getting ready to make the turn."

Because Chicago is an economic hub of the Midwest, some interpret the NAPM-Chicago report as a barometer of Midwest manufacturing, although both manufacturing and service sector companies are included in the index.

The index slipped below 50 in March, showing contraction for the first time in five months. The pullback sparked concern about the U.S. economic recovery.

The index was also below 50 in September and October, which at the time showed contraction for the first time in eight months.

New orders rose to 54.6 from 44.6. The employment component of the index fell to 43.6 from 43.7 in April.

Treasury prices fell on the data, while U.S. stocks climbed. The Dow Jones industrial average (search) and the Nasdaq composite index (search) were up sharply.

Midwest production climbed to 60.5 from 51.0. Prices paid fell to 53.7 from 55.9 last month. Inventories fell to 42.3 from 43.0.

Data from the U.S. Commerce Department showed that manufacturing output in the Great Lakes region, or Midwest, was second only to the U.S. Southeast. The Commerce Department divides the United States into eight regions.

Some economists believe the Chicago business barometer gives clues to the direction of the national Institute for Supply Management (search) report, due out on Monday. Economists polled by Reuters expected the May ISM index to rise to 47.6 from 45.4 in April.

"There is not a very strong correlation between the national number and other regional numbers," David Resler, chief economist with Nomura Securities. "So we have no conviction as to what it would do for the ISM index. But if the ISM index would show a comparable increase, it would certainly be very good news for the economy."

Other recent data on the U.S. economy have been mostly downbeat. The May University of Michigan consumer sentiment survey, released on Friday, came in at 92.1, compared with 86.0 in April. But orders for durable goods declined in April after advancing in March, a report released on Wednesday showed.