CHICAGO (Dow Jones/AP) - An important measure of manufacturing activity in the heavily industrialized region around Chicago rebounded sharply in March, having shown signs of economic contraction during the previous two months.
The National Association of Purchasing Management-Chicago said Friday that its index of manufacturing activity for northern Illinois and northwestern Indiana rose to 61.7 in March from 47.9 in February.
The latest reading was the highest in two years and marked the largest one-month movement in the history of the index.
NAPM-Chicago said that ''the magnitude of the jump provided evidence that the decline since early 2005 may be at its end,'' adding that the case for a strengthening economy over the next year is bolstered by the dramatic jump in new orders in the March index.
Analysts surveyed by Dow Jones Newswires had projected a neutral reading of 50 for the index.
The sub-50 readings in January and February marked the first time in five years that the index registered two consecutive below-neutral readings, which indicate economic contraction.
The reading in March ''supports the idea that the U.S. economy is getting its second wind, setting the stage for resumed economic growth through the rest of the year and into 2008,'' NAPM-Chicago said in the release.
The Chicago index is based on a survey of purchasing managers.
Investors were closely watching Friday's report for any signs of a slowing economy, which would bolster the view that the Federal Reserve could reduce the benchmark federal funds rate to stimulate the economy.
Shortly after the release of the report, futures markets continued to price in expectations that the Fed will reduce the key short-term lending rate to 4.75 percent by the end of this year, from the current yield of 5.25 percent.
However, the Fed has not ruled out the possibility of raising the rate to control inflation. Wednesday, Federal Reserve Chairman Ben Bernanke said that core or underlying inflation, which excludes energy and food costs, remains ''uncomfortably high.''
Early Wednesday, the government released data showing core personal consumption expenditures, the Fed's preferred inflation gauge in February, rose 2.4 percent compared with the same time a year ago, which is above the Fed's so-called comfort zone of 1 percent to 2 percent.