US manufacturing climbs out of contraction territory for the first time in 6 months

• A key gauge of US factory activity rebounded more than expected in January, climbing out of contraction territory for the first time since July.
• The Institute for Supply Management said Monday that its manufacturing index rose to 50.9 last month from 47.8 in December.
• The manufacturing sector entered a technical recession last year, contracting for five straight months as new orders and production weakened sharply.
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A key gauge of US factory activity rebounded more than expected in January, climbing out of contraction territory for the first time since July.

The Institute for Supply Management said Monday that its manufacturing index rose to 50.9 last month from 47.8 in December. Economists had expected a print of 48.5. Readings above 50 signal expansion.

"Our business is starting 2020 stronger than we finished 2019, as we saw a dramatic downturn in orders over the last four months of 2019," one survey respondent said. "Orders are up to start the year, but slightly behind where they were one year ago."

The manufacturing sector entered a technical recession last year, contracting for five straight months as new orders and production weakened sharply. At the end of 2019, the ISM manufacturing index hit its lowest level since the global financial crisis a decade ago.

Factory activity has shown signs of stabilizing following an interim trade deal between the US and China in January, but the rebound could be interrupted. A novel coronavirus has spread rapidly in China and elsewhere in recent weeks, raising concerns about economic activity across the globe.

"Good news, but it won't last," said Ian Shepherdson, the chief economist at Pantheon Macroeconomics. "We would be hopeful of further progress if it weren't for the coronavirus, but that progress now will be delayed, likely by several months, at least."

Punitive tariffs also remain on thousands of products in the largest economies, further clouding the outlook.

"Tariffs are still a concern and are believed to be a factor in short supply and higher prices of electronic parts," another respondent said. "Our profit margin has been somewhat negatively affected by high tariffs, particularly on electronic parts from China."

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