WASHINGTON - Business activity unexpectedly accelerated and fewer workers filed claims for jobless benefits, easing concern the world's largest economy is retrenching further. The Institute for Supply Management-Chicago Inc. said Thursday that its business barometer climbed to 60.4 in September, exceeding the highest estimate of economists surveyed by Bloomberg News. The number of applicants for unemployment insurance payments fell more than projected last week, another report showed. Manufacturing figures Friday and next week's September jobs report will need to confirm that a further slowdown in the economy has been averted in order to reassure Federal Reserve policy makers, who last week said they were willing to take more steps to spur growth. As firings abate, employers aren't adding enough workers to reduce an unemployment rate that's hovering near 10 percent. 'There are still significant headwinds that remain,' said Michael Gapen, a senior U.S. economist at Barclays Capital Inc. in New York. 'It's a moderate recovery. We see the Fed as being on a meeting-to-meeting basis at this point.' Readings greater than 50 for the ISM-Chicago index signal expansion. The median forecast of 57 economists surveyed by Bloomberg News projected the gauge would fall to 55.5. Estimates ranged from 53.6 to 58.3. The group's measures of orders and production rose above their six-month averages, indicating corporate investment in new equipment will remain a source of strength for the economy. 'After a soft patch, manufacturing is in a process of mustering some activity,' said Ward McCarthy, chief financial economist at Jefferies & Co. in New York. 'It seems to be moving in the right direction again and that will help the economy continue to grow.' McCarthy forecast the Chicago index would rise to 58. Automakers including Ford are among manufacturers seeing sales picking up while holding below pre-recession levels. 'The auto business is pretty steady and coming back up a little bit,' Ford Chief Executive Officer Alan Mulally told reporters in Ann Arbor, Mich., on Sept. 17. The economy 'is coming back slower than past recessions.' 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. Thursday's report was at odds with other measures of manufacturing that showed a slowdown. Another report today showed factories in the Milwaukee region stagnated. Regional Fed surveys earlier this month showed New York-region factories expanded in September at the slowest pace this year, while those in the Philadelphia area shrank for a second month. The ISM's monthly national factory index, due Friday, may drop to 54.5 in September, the lowest reading in 10 months, according to the median forecast of economists surveyed. The number of applications for jobless benefits dropped by 16,000 to 453,000 in the week ended Sept. 25, Labor Department figures showed. The total number of people on benefit rolls and those getting extended payments also fell in the prior week, the report showed. Companies in August added 67,000 workers to payrolls while total employment fell by 54,000, the Labor Department said earlier this month. Unemployment rose to 9.6 percent, and economists surveyed by Bloomberg forecast joblessness will hold near that level for the rest of the year. 'Employers are still kind of cautious,' said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, who forecasted claims would fall to 455,000. 'We need to regain that broader momentum in the economy, and something like that is just slow to develop.' The economy grew at a 1.7 percent annual rate in the second quarter, revised figures from the Commerce Department also showed Thursday. The increase in gross domestic product compares with a 1.6 percent estimate issued last month. GDP grew 3.7 percent in the first three months of the year and 5 percent at the end of 2009. With assistance from Shobhana Chandra in Washington and Keith Naughton in Southfield, Mich. 