After jumping to a ten-month high in the month of February, the Institute for Supply Management - Chicago's index of regional business activity fell by month than expected in March, according to a report released by the group on Friday.
The ISM Chicago said its business barometer fell to 62.2 in March from 64.0 in February, although a reading above 50 still indicates an increase in business activity. Economists had expected the index to show a more modest drop to a reading of 63.0.
Despite the monthly decrease, the ISM Chicago noted that the business barometer still indicated a 2-1/2 year period of expansion.
The bigger than expected drop by the business barometer was partly due to a notable slowdown in the pace of new orders growth, with the new orders index dropping to 63.3 in March from 69.2 in February.
Employment in the Chicago area also increased at a significantly slower rate, as the employment index fell to 56.3 in March from 64.2 in February.
On the other hand, the production index edged up to 68.6 in March from 67.8 in the previous month, indicating a modest acceleration in the pace of growth.
The order backlogs index also crept up to 54.3 in March from 53.6 in February, while the inventories index jumped to 57.4 from 49.6.
With regard to inflation, the prices paid index climbed to 70.1 in March from 65.6 in February, reaching its highest level since August of 2011.
Peter Boockvar, managing director at Miller Tabak, said, "Bottom line, all the regional manufacturing surveys point to continued expansion but the pace of gains have moderated."
"The ISM on Monday will reconcile all the data and will importantly include an Export component where many overseas economies are slowing," he added.
Next Monday, the Institute for Supply Management is scheduled to release its report on national manufacturing activity in the month of March. Economists expect the index of activity in the sector to climb to 53.5 in March from 52.4 in February.
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