Chicago Index Jumps to Highest Since March 2011 on Orders

Business activity expanded in October at the fastest pace since March 2011 as orders and production surged, indicating U.S. manufacturing is gaining traction and will help fuel the world’s biggest economy.

The MNI Chicago Report business barometer jumped to 65.9 from 55.7 in September, the biggest monthly increase in more than three decades. Readings above 50 signal expansion. The index exceeded the most optimistic estimate in Bloomberg survey, in which the median projection was 55. A gauge of orders advanced to the highest level in nine years.

The figures show demand strengthened through the budget impasse that resulted in a partial federal government shutdown for half the month. Recovering overseas markets, along with gains in the U.S. auto and housing industries, will help keep factory floors humming.

“Manufacturing in the Midwest is getting a lift from autos, which have been a driving force for manufacturing over the past year or so,” said Ryan Sweet, senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. Still, “anytime you get a big swing of this magnitude, you always want to take it with a grain of salt, particularly with the slowing in the domestic economy and the heightened policy uncertainty.”

Stocks dropped as investors assessed corporate earnings. The Standard & Poor’s 500 Index declined 0.3 percent to 1,757.79 at 10:31 a.m. in New York.

The 10.2-point surge in the Chicago gauge was the biggest since July 1983. Estimates of 54 economists in the Bloomberg survey ranged from 51 to 58.3. The index averaged 54.6 in 2012 and 62.8 in 2011.

Jobless Claims

Another report today showed fewer Americans filed applications for unemployment benefits last week as a backlog in California’s reporting cleared.

Jobless claims decreased by 10,000 to 340,000 in the week ended Oct. 26 from 350,000 the prior period, the Labor Department reported in Washington. The median forecast of 49 economists surveyed by Bloomberg called for a decrease to 338,000. California said no claims last week represented applications from prior weeks, a Labor Department spokesman said as the figures were released.

The Chicago group’s gauge of new orders increased to 74.3 this month, the highest since October 2004, from 58.9 in September. The production index rose to 71.1, the highest since February 2011, from 58 last month, according to today’s report. A measure of employment rose to a four-month high of 57.7 from 53.2.

Order Backlogs

An index of order backlogs climbed to 61 in October from 46.7, the highest since March 2011.

Economists monitor the Chicago index and other regional reports for an early reading on the national manufacturing outlook. The Chicago group includes goods producers and service providers with operations in the U.S. and abroad, making the gauge a measure of overall growth.

Other regional indexes have been mixed. The Federal Reserve Bank of New York’s general economic index fell to a five-month low of 1.5 in October from 6.3 in September. Readings greater than zero signal growth in New York, northern New Jersey and southern Connecticut.

Factory activity gauged by the Federal Reserve Bank of Philadelphia’s expanded more than projected in October. The index fell to 19.8 this month from 22.3 in September.

Government Shutdown

The government was partly closed Oct. 1 through Oct. 16 after Congress failed to break a deadlock over whether to tie changes to the 2010 Affordable Care Act to a short-term extension of funding. The closing resulted in at least $24 billion of lost economic output, according to Standard & Poor’s.

The budget impasse and debt-ceiling debate took a toll on confidence. Sentiment among U.S. consumers declined in October by the most since August 2011, the Conference Board in New York said this week.

While budget issues in Washington are hampering progress, some companies such as Kennametal Inc., which produces tools and tooling systems, see signs of sustained growth in the global economy.

“In the U.S., there have been various concerns about the economy as well as the fiscal budget issues and tax increases as well as the federal spending sequester,” Carlos Cardoso, chairman and chief executive officer at Latrobe, Pennsylvania-based Kennametal, said on an Oct. 24 earnings call. “Business conditions continue to be tentative” Still, “the foundation of a recovery remains strong.”

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