Midwest Business Grew More Than Expected

CHICAGO – Business expanded in the U.S. Midwest in July at an even higher rate than had been expected, figures released on Thursday showed.

The National Association of Purchasing Management-Chicago (search) index rose to 55.9 in July, its highest level since January, from 52.5 in June, suggesting growth in the manufacturing sector and stabilization in the broader U.S. economy.

A reading below 50 indicates contraction, while a reading above 50 signals expansion. Economists polled by Reuters had forecast the July index at 54.0.

"Manufacturing in the Chicago region has posed a significant comeback. This is the third consecutive month of strength in manufacturing," said Maria Forres, economist with Griffin, Kubik, Stephens & Thompson.

"Manufacturing has typically been a leading indicator in economic recoveries," she said. "Continued growth in the Chicago sector will boost national levels."

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 rose above 50 in May for the first time since February, fueling optimism about a U.S. economic recovery.

In July new orders rose to 61.7 from 54.8. The employment component of the index rose to 46.0 from 43.8 in June.

Other recent data on the U.S. economy have been mostly upbeat. The U.S. economy grew at a surprisingly brisk 2.4 percent annual clip in the second quarter, according to a Commerce Department report earlier on Thursday.

The Labor Department (search) reported on Thursday that the number of first-time jobless claims fell to 388,000 in the week ended July 26. Earlier in the week, however, the consumer confidence index from the Conference Board (search) came in well below expectations.

Treasury prices eased further on the data, while U.S. stocks climbed. The Dow Jones industrial average and the Nasdaq composite index were both up on the day.

Midwest production climbed to 58.4 from 56.5. Prices paid fell to 47.9 from 49.1 last month. Inventories fell to 39.4 from 48.8.

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 report, due out on Friday. Economists polled by Reuters expected the July ISM index to rise to 51.8 from 49.8 in June.

"At the minimum we are seeing tangible signs of a measurable increase in a key sector of the economy. I would expect the national ISM number on Friday to be up about three points on the month," said Anthony Karydakis, senior financial economist, Banc One Capital Markets.