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Activity in the Chicago-area manufacturing sector unexpectedly expanded in the month of October, according to a report released by the Institute for Supply Management - Chicago on Friday, with the index of activity in the sector rising to its highest level in over a year.
The report showed that the index of activity in the manufacturing sector rose to 54.2 in October from 46.1 in September, with a reading above 50 indicating growth in the sector. Economists had been expecting the index to increase to a reading of 49.0.
With the much bigger than expected increase, the index rose to its highest level since coming in at a reading of 55.9 in September of 2008.
The growth in the sector reflected significant turnarounds in production and new orders, with the production index surging up to 63.9 in October from 47.2 in September and the new orders index jumping to 61.4 from 46.3 in the previous month.
At the same time, the report showed that the employment index edged to down 38.3 in October from 38.8 in September, indicating continued weakness in the labor market.
The inventories index also fell to 32.2 in October from 38.9 in September, pointing to an acceleration in the pace of contraction in inventories.
Nonetheless, Peter Boockvar, equity strategist for Miller Tabak, said, "With the widening spread now between New Orders and Inventories, it should follow that inventories will start to increase in coming months."
On the inflation front, the ISM - Chicago said the prices paid index slipped to 48.6 in October from 51.3 in the previous month, suggesting a downturn in prices.
Next Monday, the Institute for Supply Management is scheduled to release its national report on manufacturing activity, with the index of activity in the sector expected to edge up to a reading of 53.0 in October from 52.6 in September.
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