The Institute for Supply Management-Chicago Inc. said today its business barometer rose to 68.8 this month from 66.8 in December. Figures greater than 50 signal expansion. Economists forecast the gauge would slip to 64.5, based on the median estimate in a Bloomberg News survey.

Manufacturers such as Caterpillar Inc. are benefiting from a pickup in consumer purchases and stronger export markets in emerging economies such as China. Consumer purchases in the final three months of 2010 were the strongest in more than four years, figures last week showed.

“As manufacturing rebounds — and new orders have continued to look pretty good for the manufacturing sector — it does indicate that the recovery has legs,” Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “This year we should hit that magical self- sustaining pace of economic growth.”

Estimates from 41 economists for the Chicago purchasers’ index ranged from 60 to 71.3.

Separate figures today from the Commerce Department showed Americans’ spending rose more than forecast in December. Household purchases increased 0.7 percent, while incomes gained 0.4 percent for a second month, the figures showed.

Orders, Employment

The Chicago group’s production gauge rose to 73.7 from December’s reading of 72.2. The gauge of new orders increased to 75.7, the highest since December 1983, from 68.7. The employment measure rose to 64.1, the highest since May 1984, from 58.4 the prior month.

Economists watch the Chicago index and other regional manufacturing reports for an early reading on the outlook nationally. The Chicago group says its membership includes both manufacturers and service providers, making the gauge of measure of overall growth. Its members have operations across the U.S. and abroad.

Other measures of regional manufacturing have shown strength in January. The Federal Reserve Bank of New York on Jan. 18 said manufacturing expanded in that region this month, and the Philadelphia Fed said two days later that factories expanded for a fourth month.

U.S. Manufacturing

The ISM’s monthly national factory index, due tomorrow, was probably little changed at 58 in January after 58.5 the prior month. A reading above 50 signals expansion.

A pickup in consumer demand, which accounts for about 70 percent of the U.S. economy, could add to gains in manufacturing. The Commerce Department reported last week that household purchases rose at a 4.4 percent pace in the fourth quarter, the fastest in more than four years, while the economy grew at a 3.2 percent rate.

Consumers may further ramp up spending as they benefit from an $858 billion bill extending all Bush-era tax cuts for two years. President Barack Obama’s legislation also extends the window for expanded unemployment insurance benefits through 2011, trims payrolls taxes and includes accelerated tax depreciation for equipment purchases.

The manufacturing industry, which accounts for about 11 percent of the economy, has been at the forefront of the economic recovery that began in 2009.

Caterpillar Profit

Caterpillar, the world’s largest maker of construction equipment, posted fourth-quarter profit that topped analysts’ estimates as sales advanced in China, Australia and Latin America. Revenue climbed 62 percent to $12.8 billion from $7.9 billion a year earlier, the company said last week.

In 2011, sales will exceed $50 billion, compared with $42.59 billion in 2010, according to the company.

“There’s quite a bit of pent-up demand there yet to come,” in North America, Ed Rapp, chief financial officer of the Peoria, Illinois-based company, said last week during a conference call. “The tailwinds come as we get more robust growth.”