US manufacturing sector contracts at slower pace

"None of the six biggest manufacturing industries registered growth in December," he added.

Fiore noted that demand eased as well, with the new orders index contracting at a quicker rate and the new export orders index "essentially flat."

Overall, the manufacturing sector has been weak "thanks in large part to constrained capital spending," said economists at Pantheon Macroeconomics.

But sentiment should improve with a fall in interest rates this year.

"Anticipation of the US Federal Reserve holding off on interest-rate changes will encourage more companies to spend on capital investments again," said an ISM respondent in the computer and electronic products sector.

"As budgets get approval after the start of the calendar year, this should help drive investment and increase manufacturing activity once again," the respondent added.

The Fed has lifted the benchmark lending rate rapidly since early 2022, making borrowing more expensive as it sought to cool demand and curb surging inflation.

But the central bank has held rates steady at recent policy meetings, while optimism grows that rate cuts are on the way.

Economists at Pantheon expect an eventual rebound in manufacturing and the interest-sensitive housing sector.

They warned however that the boost to GDP growth would likely be "offset by softer growth in real consumption spending, where the lagged effect of the prior surge in rates has yet to fully work through."