The Institute for Supply Management (ISM) and MNI Indicators have released the Chicago Business Barometer for August. The Chicago Purchasing Manager Index (PMI) rose more-than-expected last month to a seasonally adjusted 64.3.

Economists had anticipated a reading of 54.8, up from 52.6 in July, the lowest reading since June of 2013. The new reading is still down from a cycle peak in May of 65.5. Any reading above 50% indicates expansion.

Of the key components, Production rose more than 20 points to its highest reading in nearly a decade. New Orders and Order Backlogs both rose sharply, with the latter moving well out contraction.

Employment was the only component to fall, though it remained well above 50.

Philip Uglow, Chief Economist at MNI Indicators said:

We had speculated that July’s downturn would prove temporary rather than signal the start of a downward trend. The sharp bounceback in August, with growth in output at the highest for nearly ten years, suggests that growth in the US economy will continue apace in Q3.

A separate report on Friday showed a decline in consumer spending in July that raised concerns about possible deflation and suggested that the third quarter was off to a rough start, compared with the robust GDP growth in the second quarter. Chicago PMI seems to tell a different story. The next ISM manufacturing report is due early next week.

The Chicago Business Barometer summarizes all current business activity in the Chicago area. It is considered to be a leading indicator of the U.S. economy, but given the light trading ahead of the Labor Day weekend, the report is unlikely to have much impact on Friday.

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