NEW YORK (CNN/Money) - A closely watched measure of manufacturing activity in the Chicago area dipped a bit in February, the region's purchasing managers said Friday, but was still stronger than most economists expected.

The National Association of Purchasing Management-Chicago said its index of regional manufacturing fell to 54.9 from 56 in January. Any reading above 50 signals expansion in the sector.

Economists, on average, expected the Chicago PMI index to drop all the way to 52.5, according to Briefing.com.

The report helped lift U.S. stock prices, while Treasury bond prices fell.

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Manufacturers have generally been suffering for years. The industry's recession got the jump on the broader economic recession, with the grandaddy of all manufacturing indicators, the Institute for Supply Management's index, falling to contraction levels in August 2000 and staying underwater until January 2002. About 2 million manufacturing jobs were cut during that time.

Manufacturing eked out some gains in 2002, but 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.

Still, after falling below 50 in September and October, the Chicago PMI has shown expansion in the sector for four straight months, enhancing the picture painted by other measures of manufacturing activity.

The Institute for Supply Management's closely watched national index rose in January for the third straight month, and regional measures from the Philadelphia Federal Reserve and the New York Fed (the up-and-coming Empire State Survey) have also been consistently higher in recent months.

Cold weather, higher oil prices, and the buildup to a U.S.-led war in Iraq likely slowed manufacturing activity down in February, however, according to recent drops in the Philly Fed and Empire State indices.

Most economists hope that once the war against Iraq, which could start early in March, is over, oil prices will fall and 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 rose to 46.6 from 45.6 in January, indicating manufacturers were still laying off workers, but at a slower pace.

The index of prices paid rose to 54.9 from 54.2 last month. Manufacturers are paying more for oil and other commodities, but haven't been able to pass those prices on to consumers, putting a damper on profitability and discouraging new hiring.