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Economic activity in the manufacturing sector picked up a notch in January. Specifically, a report, issued earlier this morning by the Institute for Supply Management, a private Tempe, Arizona-based trade group, showed that manufacturing had increased last month from December's reading of 53.1 to one of 54.1.

It should be noted that a survey result above 50 signals that manufacturing is growing, while a reading between 42 and 50 suggests that the industrial sector is contracting, but that the economy, overall, is on the mend. A reading below 42 is consistent with recessionary conditions. In all, this was the 30th consecutive month in which the manufacturing arena had enjoyed growth. That span of improvement more or less tracks the business expansion, in general. 

In addition to the overall rate of improvement, the report showed that new orders had picked up last month, increasing from 54.8 to 57.6. However, growth in production slowed, easing from 58.9 to 55.7. Employment's growth also moderated slightly, going from 54.8 in December to 54.3 last month. Gaining strength in January, meanwhile, were supplier deliveries, backlogs, prices, and exports. Importantly, the earlier decline in inventory levels has lessened, with that category rising from 45.5 in December to 49.5 in January. Thus, this component is now on the cusp of an expansion. Encouragingly, no category came in below 42 last month.

Comments from purchasing managers, moreover, were generally supportive, with machinery managers suggesting that customers are positive about increased business in 2012. In paper products, meanwhile, there were supportive comments along the lines that ''once again, business continues to be strong.'' And in fabricated metals, it was noted that ''the economy seems to be slowly improving.'' Finally, computer and electronics managers noted that ''business lost offshore is coming back.''

All in all, it was an encouraging report, and raises hopes for a further upturn in the economy following yesterday's rather listless consumer confidence reading. This report underscores our view that the economy will grow by 2%, or more, in the current period. Although that would be a modest step back from the fourth-quarter 2011 rate of 2.8%, it would still be sufficient, in our opinion, for the nation's payroll numbers to head further along the recovery trail. We will get both the nation's employment and unemployment report and the companion survey by the ISM on non-manufacturing activity on Friday morning.