Midwest business expands rapidly; hiring down

By Ros Krasny

CHICAGO (Reuters) - Business activity in the U.S. Midwest expanded strongly in August as production and new orders jumped, even as the rate of hiring plummeted to a four-month low, a report showed on Friday.

The Institute for Supply Management-Chicago business barometer surged to 57.9 in August from 50.8 in July, the highest point since June 2007 -- a huge surprise in an economy thought by many to be teetering on the brink of recession.

Economists had forecast the index at 50.0, straddling the line between expansion and contraction.

The employment component of the ISM-Chicago index fell to 39.2 from 45.9 in July, the lowest since April.

At the same time, new orders jumped to 60.2 from 53.5 and production rose to 63.4 from 49.2.

"The erratic nature of this release is exemplified by the sharp increase in orders and the contrasting weakness seen in employment," said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut.

Prices paid eased to 80.6 from 90.7 -- the largest decline since September 2007.

U.S. Treasury yields rose on the report's surprising strength. The benchmark 10-year yield has hit 3.84 percent against 3.77 percent earlier.

"Chicago PMI was much firmer than expected, bringing in more sellers into a rather thin market. The breakdown looks good, with new orders up almost seven points," said Rudy Narvas, analyst at 4CAST Ltd in New York.

Many analysts consider the NAPM-Chicago survey a factory report since the region is relatively industrialized, but service sector companies and non-profits are also polled.

The barometer measures activity by companies in the Chicago area, even if they have operations elsewhere.

Based on the surge in Midwest business activity some analysts could raise their forecasts for the national ISM factory index, due on Tuesday.