Manufacturing in the Chicago area unexpectedly accelerated in September to the highest level since July 2005 as new orders picked up.
The National Association of Purchasing Management-Chicago said Friday that its regional index jumped to 62.1 this month from 57.1 in August. Economists had expected a decline to 55.7. A reading greater than 50 signals growth, and September was the 41st straight month the index has been above that level.
Manufacturing, which represents 12 percent of the economy, is supporting growth as consumer spending softens and the housing market cools, economists said.
“This strength clearly indicates that the factory sector isn’t as much under pressure as we’d thought,” said David Watt, a senior economist at BMO Nesbitt Burns in Toronto. “The retreat in energy prices provided some cushion on the cost side. It’s a better sign for corporate profitability.”
The production index surged to 67.4, an 11-month high, from 61.7, and the new orders index rose to 67.3 from 59.6. The gain in new orders follows a government report earlier this week that showed durable goods orders in July and August posted their first back-to-back decreases since April-May 2004.
Friday’s report showed a gauge of prices paid for raw materials fell to 69.8, the lowest since August 2005, from 75.2. A slowdown in oil prices and other commodities is helping ease pressure on companies to raise prices of finished goods, economists said.
The inventories index climbed to 63.5 from 51.3, and that buildup is most worrisome, the report said, because it “provides ammunition for concerns about the current and future course of the economy.
“Either businesses are expecting good times ahead, and building inventories to meet those expectations, or the economy is not as robust as it otherwise appears.”
An employment index slid to 50.8 from 55.1 in August. A gauge of order backlogs rose to 51.0 from 44.1. A measure of delivery times fell to 56.8 from 58.2.
The Chicago survey is watched closely for clues to the national manufacturing index of the Institute for Supply Management, which is scheduled to be released Monday.
The Federal Reserve Bank of Chicago says its district, which includes Indiana and Michigan, makes 40 percent of the nation’s motor vehicles, 35 percent of its steel and almost half of its domestic farm equipment.
