Industrial activity in the U.S. rebounded in December following a surprise contraction in the prior month, a survey by the Institute of Supply Management showed Jan. 3. The ISM index of national industrial activity rose to a better-than-expected 51.4% in December from 49.5% in November.

Most Wall Street analysts had only expected the index reading to rise to 50.

Any reading under 50 indicates a contraction, so the report suggests the industrial economy is expanding again after shrinking in November.

The prices paid index -- a measure of inflation for companies -- declined to 47.5% from 53.5% a month earlier, indicating a moderation in inflationary pressures.

Norbert Ore, the ISM survey chief, said the survey results showed that the manufacturing sector had proved resilient in the final month of 2006, a year in which the wider U.S. economy slowed markedly. "The prices index is trending downward, relieving some of the inflationary pressure that has troubled manufacturing since the middle of 2003," Ore added.

“Manufacturing activity came to a virtual halt in the last three months of last year. The December ISM report suggests that the pronounced slowing over the last three months is temporary and that manufacturing activity may be beginning to pick up again," said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI.

“For the years as a whole, manufacturing grew much faster than the general economy in 2006,” Meckstroth added. “The outlook for 2007 is for manufacturing production to approximate the growth rate for the general economy.”

The index of new orders rose to 52.1%, while employment increased slightly to 49.7%. Inventories shrank.

"Manufacturing employment remained relatively unchanged as the employment index shows a negligible change for the second consecutive month," Ore said.

The index of exports declined to 54.3% from 56.9%.