With numbers above 50 indicating expansion, the Chicago association's headline business barometer rose from 52.9 in June to 53.7 in July.
Among composite indexes, the production index dropped from 57 to 54.5, but the new orders index rose to 52.9 from 51.9.
The employment index, meanwhile, fell sharply from 60.4 to 53.3.
The inventories index also was lower, dropping from 53 to 52.6.
The index released Tuesday covers businesses in Illinois, Indiana and Michigan.
With new orders higher and business inventories lower, the employment index is more likely to turn higher or break even in August.
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