NEW YORK ( TheStreet) -- Manufacturing activity in the U.S. expanded in December, led by strength in new orders and production, according to the Institute for Supply Management's Manufacturing Report on Business. The Purchasing Managers' Index, or PMI, rose to 57% from 56.3% in November. That was in line with estimates. Economists expected the index to rise to 57.3%. A reading over 50 indicates expansion. The index is based on a survey of purchasing and supply managers nationwide. "We saw significant recovery for much of the U.S. manufacturing sector in 2010," Norbert Ore, chair of the survey committee noted. "The recovery centered on strength in autos, metals, food, machinery, computers and electronics, while those industries tied primarily to housing continue to struggle. Additionally, manufacturers that export have benefited from both global demand and the weaker dollar. December's strong readings in new orders and production, combined with positive comments from the panel, should create momentum as we go into the first quarter of 2011." Manufacturing tends to lead the economy into and out of recessions and remains a key indicator of economic activity. Industrials performed well in 2010, as strong demand from China and other emerging markets helped companies such as Caterpillar ( CAT) and Deere ( DE).
New orders and production showed the steepest increase in December. The ISM New Orders Index jumped 4.3 percentage points to 60.9% in December. The Production Index rose 5.7 percentage points to 60.7%. Backlog of orders also improved 1 percentage point to 47 %. A healthy backlog is necessary for a more sustainable growth in manufacturing. Inventories and supplier deliveries grew at a slower pace. A sore point in the report was the drop in the employment index to 55.7%. The prices index also rose 3 percentage points to 72.5%, raising concerns of inflation.