The Chicago Business Barometer, also known as the Chicago PMI, rebounded to 44.9 in December from 37.2 in the prior month, which was the lowest reading since the 2007/2008 financial crisis.
Economists polled by the Wall Street Journal forecast a 40.5 reading.
Readings below 50 indicate contraction territory.
The manufacturing sector is suffering from slow demand due to the weak global economy and has worked through the backlog of unfilled orders from the pandemic, said Richard Moody, chief economist at Regions Financial Corp.
“The next several months will be challenging for the manufacturing sector,” Moody wrote in a note to clients earlier this month.
The index is produced by the ISM-Chicago with MNI. It is released to subscribers three minutes before its release to the public at 9:45 am Eastern.
The Chicago PMI is the last of the regional manufacturing indices before the national ISM data for September is released on Wednesday.
Economists expect the ISM factory index to slip to 48.5 from a 30-month low reading of 49 in November.