Aug. 29--Chicago-area manufacturing activity showed a powerful -- and unexpected -- jump in August, according to a closely followed trade group report issued Friday.

The Institute for Supply Management-Chicago's "business barometer" stood at 50.8 in July, and most experts had thought the measure would drop back slightly in August to about 49.8.

But instead, the activity yardstick often known as the Chicago purchasing managers index jumped to 57.9, its highest level in 14 months. New orders and strong production rates drove the sometimes-volatile measure higher.

Any reading above 50 indicates that activity is expanding, while a sub-50 level indicates the sector is contracting.

While good news for the regional economy, the Chicago PMI's unexpected August surge was so large that a number of observers cautioned against reading too much into the index.

"It's not clear to us why the (Chicago) survey is so strong or whether it can last," said High Frequency Economics' Ian Shepherdson. The export boom is greatly helping manufacturers, the economist noted, "but it is hard to imagine it would generate such a jump in a single month." A single month, he warned, "does not make a trend."

The index makes it clearl that manufacturing "improved measurably ' in August, echoed Moody's Economy.com economist Ryan Sweet, "but this pace is unsustainable."

The monthly survey examines a variety of indicators including new orders, inventory levels, and employment trends. New orders, a measure that offers a hint about future production rates, jumped to 60.2 last month from 53.5 in July.

But employment dropped from a weak 45.9 in July to a dismal 39.2 level in August.

The "prices paid" reading showed signs that the jump in manufacturers' costs for materials may be easing as fuel costs plateau: the measure dropped from 90.8 in July to 80.6 in August, a softening that Economy.com's Sweet called "good news" for inflation fighters at the Federal Reserve.

jpmiller@tribune.com

-----

To see more of the Chicago Tribune, or to subscribe to the newspaper, go to http://www.chicagotribune.com.

Copyright (c) 2008, Chicago Tribune

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.