Manufacturing Activity Improves in January

An important gauge of manufacturing activity ticked higher in January, suggesting that the battered sector is poised to emerge from its 17-month slump, an industry group reported Friday.

The Tempe, Ariz.-based Institute for Supply Management, formerly known as the National Association of Purchasing Management, said its index of business activity rose to 49.9 in January from a revised 48.1 percent in December. Analysts had been expecting a reading of 50.

An index above 50 signifies growth in manufacturing, while a figure below 50 shows contraction.

"It is encouraging that the rate of decline has slowed to its lowest measurable level," said Norbert J. Ore, chairman of the ISM.

The ISM measure is closely tracked by economists because it offers an early reading on the health of the manufacturing sector. Its index is based on a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 companies.

Ore said new orders, production and supplier deliveries helped move the index higher in January. But employment and inventories held it back.

On Wall Street, stocks were lower Friday, with the Dow Jones industrial average off 15 points at 9,905 and the Nasdaq composite index losing 2 points at 1,932.

Earlier Friday, the Labor Department reported that the nation's unemployment rate unexpectedly dropped to 5.6 percent in January. The jobless rate fell by 0.2 percentage points, reversing December's increase.

Growth in the nation's economy during the fourth quarter and other signs of recovery prompted the Federal Reserve to hold off earlier this week from continuing its yearlong campaign to reduce interest rates. The central bank cut short-term rates 11 times last year in an effort to encourage consumer and business borrowing to resuscitate the weak economy.

Manufacturers have been the hardest hit by the downturn in the economy, which officially slid into a recession in March.

But Friday's report and other recent data indicate that the worst may be over for the sector, analysts say.

"While the manufacturing decline is now in its 18th month, some industries are starting to show significant signs of recovery as both new orders and new export orders are improving," Ore said.

A report released Tuesday by the Commerce Department showed that orders to U.S. factories for costly durable goods -- defined as items expected to last three years -- rose a larger-than-expected 2 percent in December

Of the 20 industries tracked by the ISM, three reported overall growth last month, Ore said. They were leather; wood and wood products; and transportation and equipment.