Business activity in the U.S. Midwest expanded more rapidly than expected in May, encouraging more firms to start hiring, a report showed Friday

The National Association of Purchasing Management-Chicago (search) business barometer jumped to 68.0 -- its highest level since January 1988 -- from 63.9 in April.

An index over 50 reflects expansion. Economists had forecast the index at 61.0.

"This confirms the reading on the economy that I have had since the beginning of the year, a mini-boom. This is not only sustainable as an expansion for the next 12 months but it is alaid David Littmann, chief economist with Comerica Bank (search) in Detroit.

The employment component of the index, which has hovered in a neutral zone for months, jumped to 54.8 from 50.9 to show a rare two-month streak of expansion.

Prices paid rose to 80.0 from 76.1 and new orders were at a 20-year high of 74.4 versus 65.1 in April.

U.S. Treasury prices fell on the data, which suggested that the Federal Reserve (search) has more reason to tighten monetary policy in the face of strong growth.

The 10-year Treasury note yield neared 4.65 percent after trading at 4.61 percent earlier on Friday. U.S. stock prices were down slightly.

Chicago is the economic hub of the Midwest, with an emphasis on auto production, so many view the NAPM-Chicago report as an industrial indicator even though service sector companies are also polled.