U.S. Chicago Purchasing Managers' Index Rises to 57.9

By Bob Willis

Aug. 29 (Bloomberg) -- A measure of U.S. business activity showed expansion at the fastest pace in more than a year, as production accelerated the most since October 2004.

The National Association of Purchasing Management-Chicago said today its business index rose to 57.9 this month, the highest level since June 2007, from 50.8 in July. Fifty is the dividing line between growth and contraction. The index averaged 54.4 last year.

Demand from abroad is keeping American assembly lines moving as a weak dollar makes U.S. goods cheaper overseas. That's helping offset weakness in sales at home, as house prices and elevated fuel costs squeeze consumers.

``Sky-high exports clearly appear to be bolstering confidence,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``But with consumer demand falling for a second straight month, and auto sales at decade lows, it remains an open question whether business confidence can stay at these elevated levels.''

Economists surveyed by Bloomberg News had projected the index would fall to 50, according to the median of 62 forecasts. Estimates ranged from 48 to 52.5.

Earlier today, a Commerce Department report showed spending by U.S. consumers slowed in July as the impact of the tax rebates faded and a pickup in inflation eroded Americans' buying power. The 0.2 percent rise in purchases matched economists' forecasts and followed a 0.6 percent increase in June, the department said. Prices rose by the most in 17 years.

Demand Strengthens

The Chicago report's measure of new orders increased to 60.2, the highest level since September, from 53.5 in July. The production gauge rose to 63.4, the highest since June 2007 and biggest jump since October 2004, from 49.2 in July.

Order backlogs gained to 63 from 45.7, while the employment index decreased to 39.2 from 45.9 a month ago.

The group's inventories index fell to 52.2 from 54.9.

The purchasing managers' measure of prices paid for raw materials declined to 80.6 from 90.7 the prior month, when it reached its highest since March 1980.

Rising costs have hurt some companies. Eastman Kodak Co., which has invested heavily to focus on digital cameras and inkjet printers, reported a 14 percent decline in second quarter net income, on rising costs to buy raw materials and develop electronic cameras and printers.

``It's hard to deal rapidly with the rising commodity costs in a declining business,'' said Chief Executive Officer Antonio Perez on a July 21 conference call from Rochester, New York.

Economists monitor the Chicago index for an early reading on the outlook for U.S. manufacturing, which makes up about 12 percent of the economy.

Manufacturing in the U.S. probably contracted in August for a fifth time in eight months, economists project a report Sept. 2 will show. The Institute for Supply Management's factory index probably dropped to 49.5 from 50 in July, according to the survey median.

In the second quarter, the economy expanded at a 3.3 percent annual pace, faster than the prior estimate of 1.9 percent, as exports grew faster, the government said yesterday.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net