When released Friday, the index is expected to fall to a level of 50.0 from the 50.8 recorded in July. The index is a regional survey of business activity in Illinois, Indiana and Michigan.

Economists from Barclays Capital are more optimistic, forecasting that the index will instead tick up in the month to 51.0. They noted that, excluding the employment index, all of the components of the Chicago PMI increased in July, including the more forward-looking new orders and order backlog indexes. "More broadly, Chicago-area manufacturing conditions have been gradually improving for five months now," they wrote in a note to clients. "We think this trend will continue in August, in line with the pickup in production expected in Q3."

Mike Englund, chief U.S. economist from Action Economics, said markets have grown to accept that the producer sentiment figures are not going to co-operate with the "recession-scenario," given the significant GDP gain for the second quarter and growing evidence of strength in Q3 as evidenced by the durable goods report.

"I actually don't think either upside or downside surprises for this measure will have much market effect, as the figure is volatile, and there is such a preponderance of evidence that the factory sentiment figures are moving sideways more generally," he said.

Whether the index comes in slightly below or above July's reading, Dustin Reid, chief currency strategist from ABN Amro, said it is not likely to have much of an impact on currency markets. "I think the Chicago PMI would need to be well off of consensus for it to have a significant impact on USD," he wrote. "Overall, I believe that oil remains a more important key driver for the USD, FX in the short-term."

In the July report, the prices paid index continued to soar, surpassing 80 for the sixth time this year. The July reading was the highest level since March 1980.

Employment has been declining since November and production stalled at 49.6 - consistent with year-to-date results.

By Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Sarah Sussman, This email address is being protected from spam bots, you need Javascript enabled to view it

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