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Chicago-Area Manufacturing Index Suggests Contraction For First Time In Nearly Four Years

Chicago PMI drops below 50; employment reading at four-year low.

CHICAGO (Dow Jones/AP) - Manufacturing activity shrank in northern Illinois and northwestern Indiana in January, according to a survey of purchasing managers published Wednesday.

The National Association of Purchasing Management-Chicago said its index of manufacturing activity in one of the nation's largest industrialized regions fell to 48.8 in January from 51.6 the month before. Readings under 50 indicate economic contraction.

The index initially slipped below 50 in November, though was later revised upward above 50. Therefore, the January figure represents the first time since April 2003 that the Chicago Purchasing Managers Index indicates a contraction.

Analysts surveyed by Dow Jones Newswires had expected a reading of 52.

The Chicago survey is closely watched for clues to nationwide index on manufacturing from the Institute for Supply Management, due Thursday at 10 a.m. EST.

The Chicago index was published only hours before Federal Reserve policy makers were to issue their next decision on interest rates. The Fed's monetary policy committee is keeping close tabs on economic indicators as it decides whether to adjust rates after leaving them unchanged at each of its last four meetings.

Federal Reserve policy makers have said on several occasions that they expected moderating economic growth, which would reduce inflationary pressures. However, a string of other recent data have indicated that the economy is doing better than many observers had expected. That has led many market participants to factor out the possibility of rate cuts for at least the next several months.

The Federal Open Market Committee is expected to keep its benchmark federal funds rate steady at 5.25 percent.

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