The pace of business activity in the U.S. Midwest rose in July, as somewhat stronger new orders offset a weakening labor environment, according to a report out Tuesday.

The Institute for Supply Management-Chicago business barometer rose to 53.7, from 52.9 in June, beating economists' forecasts for 52.5.

A reading above 50 indicates expansion in the regional economy.

The forward-looking new orders index rose to 52.9, from 51.9, while the gauge of employment sank to 53.3 — the lowest level since July 2011 — from 60.4 last month.