By Jeffrey Sparshott

WASHINGTON -- U.S. factory activity accelerated to the fastest pace in more than two years in January, a sign of momentum for a key sector of the economy.

The Institute for Supply Management on Wednesday said its purchasing managers index rose to 56.0 in January from 54.5 in December, the highest since it touched 57.5 in November 2014.

A reading over 50 indicates expansion in the manufacturing sector; below 50 suggests contraction.

Economists surveyed by The Wall Street Journal had expected a January reading of 55.0.

The latest report in part feeds off expectations the Trump administration will roll back regulations and take other steps to help industry, said Bradley Holcomb, who oversees the survey."It's a continuation of the momentum that was built in the latter part of last year and hopes and expectations for the new economy, the new administration, which is settling in to starting its work," Mr. Holcomb said.

Factory output had been choppy for much of 2015 and 2016. The ISM gauge signaled contraction in late 2015 and early 2016 as manufacturers were squeezed by the energy sector's slump and a strong dollar, which curtailed foreign demand for U.S.-made products.

After some stops and starts, the index has now strengthened for five consecutive months, aided by stabilization in global oil prices and rising consumer confidence.

Details of Wednesday's report were broadly upbeat. The new-orders index inched up to 60.4 in January from 60.3 the prior month, and the production index was 61.4 last month, up from 59.4 in December. The employment index increased to 56.1 compared with 52.8 a month earlier.

Raw material prices are also up for 11 straight months, a development that could suggesting rising inflation pressures. The subindex registered 69 in January, an increase from 65.5.

Other measures of manufacturing have been mixed. Demand for long-lasting goods stabilized toward the end of the year, according to separate Commerce Department data. A Federal Reserve report on industrial output showed that factory activity ended 2016 little changed from the beginning of the year.

Write to Jeffrey Sparshott at jeffrey.sparshott@wsj.com

(END) Dow Jones Newswires

February 01, 2017 11:03 ET (16:03 GMT)

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