Activity in the Chicago-area manufacturing sector continued to contract in the month of March, according to a report released by the Institute for Supply Management - Chicago on Tuesday, with the index of activity in the sector showing an unexpected decrease.

The report showed that the index of activity in the sector fell to 31.4 in March from 34.2 in February, with a reading below 50 indicating a contraction in the sector. Economists had been expecting the index to edge up to a reading of 34.3.

With the unexpected decrease, the index of activity in the Chicago-area manufacturing sector fell to its lowest level since July of 1980.

An acceleration in the pace of contraction in production contributed to the continued weakness in the sector, with the production index falling to 32.7 in March from 34.7 in February.

While the report also showed that the new orders index edged up to 30.9 in March from 30.6 in the previous month, the index still indicated significant weakness in new orders.

The employment index also increased from the previous month, rising to 28.1 in March from 25.2 in February. Nonetheless, the reading still pointed to a substantial contraction in employment.

The ISM Chicago added that the prices paid index fell to 34.1 in March from 37.8 in February, indicating an acceleration in the pace of contraction in prices.

Peter Boockvar, equity strategist at Miller Tabak, said, This regional survey follows the mixed reports we've seen from others, as NY was weaker but Philly, Richmond and Dallas were better than estimated.

The ISM national number tomorrow will reconcile the differences, Boockvar added.

The Institute for Supply Management will released its national manufacturing report at 10 am ET on Wednesday, with economists expecting the index of activity in the sector to edge up to a reading of 36.0 in March from 35.8 in February.

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