US manufacturing activity unexpectedly contracted in January, prompting fresh fears about how robust the US economy is and the threat from inflation.
The Institute for Supply Management said its index of national factory activity eased to 49.3 from 51.4 in December, below economists' average forecast for a slight rise to 51.9.
A reading below 50 indicates shrinkage and the index was last below this level in November when it recorded 49.9.
New goods orders, seen as an indication of future expansion, declined to 50.3 last month from 51.9 in December.
The figures contrast with the Federal Reserve's comments last night, when it left interest rates steady at 5.25%, which implied the economy was in good shape.
The report also came a day after data showed that in the fourth quarter of 2006, the economy grew at a faster pace than expected and inflation was tame.
A separate government report released earlier today showed spending rose as expected in December, while core consumer prices gained less than anticipated, suggesting inflation is contained.
Core consumer prices, which exclude volatile energy and food costs, rose 0.1% in December after being unchanged in November.
Core prices rose 2.2% percent from December a year ago, the same pace as the 12-month rise in November.
However, the Federal Reserve prefers the 12-month rise in core prices to remain between 1% and 2%, and so will be keeping an eye on this for its next monthly interest rate decision.
