NEW YORK (CNN/Money) - A closely watched measure of manufacturing activity in the Chicago area fell in March, the region's purchasing managers said Monday.

The National Association of Purchasing Management-Chicago said its index of regional manufacturing fell to 48.4 from 54.9 in February. Any reading below 50 signals contraction in the sector.

Economists, on average, expected the Chicago PMI index to drop to 50.7, according to a Reuters poll.

The report helped fuel greater losses in U.S. stock market prices in early trading. Treasury bond prices rose.

Manufacturers have been suffering for years. The industry's recession got the jump on the broader economic recession -- the key national manufacturing indicator, the Institute for Supply Management's index, fell to contraction levels in August 2000 and stayed underwater until January 2002. About 2 million manufacturing jobs were cut during that time.

Manufacturing eked out some gains in 2002. But it suffered late in the year, along with other businesses, from fears about the possibility of war against Iraq and an overhang of production capacity left over from the investment bubble of the late 1990s.

After a brief rebound, activity was driven down again in the months leading up to the war, due in part by cold weather, higher oil prices, and worries about the war's impact on the economy.

Monday's report comes a day before the ISM index for March, which is expected to contract after three straight months of expansion, echoing regional measures from the Philadelphia Federal Reserve and the New York Fed, which have recently fallen into the red.

Most economists hope that, once the war is over, business activity will pick up. Other economists are concerned that there's too much overhanging debt and production capacity left over from the late 1990s investment bubble to allow businesses to spend and hire much more.

The employment component of the Chicago PMI index fell to 45.1 from 46.6 in February, indicating manufacturers were laying off workers at a faster pace.

The index of prices paid rose to 62.8 from 54.9 in February. Manufacturers have been paying more for oil and other commodities, but have struggled to pass those prices on to consumers, putting a damper on profitability and discouraging new hiring.

The new orders index fell to 52.5 from 59.0 in February, indicating the factory sector's woes might not end any time soon.