The American Institute of Supply Management index fell in January, but it’s still showing the economy in a growth position, note Canadian brokerage economists The index came in at 53.9, down from December’s 55.2 reading, but anything above the 50-mark shows growth.

BMO Nesbitt Burns predicts that increased auto and light truck production will maintain the index’s firm tone in coming months. BMO NB economists also “believe the drop in the U.S. dollar is contributing to the improving ISM tone. This strength comes despite the onslaught of downbeat news on global growth in recent months.”

“Overall, the report suggests that the U.S. manufacturing sector is indeed on the mend,” says TD Bank, though, there were some weak spots. The inventories sub-index declined to 45.4, and the employment sub-index fell too. “This should not detract from the overall positive tone of this morning’s report, which is consistent with our call for the U.S. economy to grow at an annualized rate of about 2% in the first quarter.”

U.S. construction spending rose a stronger-than-expected 1.2% in December following an upwardly revised 0.9% gain in November. RBC Financial says these numbers suggest the 0.7% rise in Q4 GDP will be revised higher.

“The ISM survey is consistent with our view that the industrial sector will revert to being a growth contributor, after a quarterly decline in Q4 2002. But we would look for yet another stall in Q2, after a one-quarter inventory build at plants and their customers in the current quarter,” says CIBC World Markets.

“The Fed watches ISM closely. Manufacturing was the economy’s weak spot and it seems to be moving out of the ‘soft patch’ it was in last autumn,” concludes BMO.