US factories surge ahead

The respected Institute of Supply Management's manufacturing activity index leapt to 54.7 in December, up from 49.2 the month before, and far ahead of expectations.

The reading is the best since June and this is the first time since August that it has climbed above 50 - the level which separates contraction and expansion.

Economists had feared another lacklustre reading although regional surveys in Philadelphia, New York and Chicago in recent weeks have suggested the start of a turnaround.

Mixed fortunes

The surprise boost to manufacturing follows a set of contradictory indicators in other parts of the economy.

November had produced a healthy performance from the service sector, as well as a slowdown in job losses after a year of mass layoffs.

But consumer confidence - the engine of the US economy throughout the recent downturn - is beginning to flag, according to one of the most closely watched surveys on the subject.

And so far, people do not seem to have been spending as enthusiastically as retailers had hoped.

"The question at this point is whether the manufacturing sector can continue to gather momentum during the first quarter of 2003," said Norbert Ore, chair of the ISM manufacturing business survey committee.

New business

Even so, the rise in manufacturing activity overall disclosed some encouraging pointers.

In an environment where business investment has been muted for months, the new orders index leapt to 63.3 from 49.9 in November, hinting at healthy activity in the months ahead.

But while the employment index registered a rise, it remained in the contraction zone at 47.4, marking the 27th straight month the survey has registered shrinking payrolls.