A gauge of U.S. factories rose in January from a two-year low as measures of new orders and production snapped back following steep declines the prior month, indicating a more stable outlook for manufacturing at the start of 2019.

The Institute for Supply Management index unexpectedly rose to 56.6, exceeding all economist estimates in Bloomberg’s survey and rebounding after the steepest drop in a decade, data showed Friday. The gauge was propelled higher by the orders index jumping by the most since 2014 and the biggest gain for production in eight years.

Key Insights

• Factory conditions improved as companies boosted production to meet consumer demand and orders jumped. Manufacturers and their customers may have accelerated transactions to avoid a potential increase in U.S. tariffs on Chinese goods should talks between Washington and Beijing ultimately falter.
• Despite the broad stabilization, evidence of volatility tied to the trade dispute remains: An index of exports declined to the lowest level since late 2016, while a measure of imports rose for the first time in four months.
• An index of prices paid in the sector dropped below the 50 for the first time in almost three years, meaning companies are seeing raw-material costs decline. That suggests lower oil prices may be offsetting any inflationary impact from higher prices on Chinese and other foreign goods due to tariffs.
• An index of supplier deliveries fell to a 14-month low, indicating bottlenecks are moderating. At the same time, a measure of order backlogs ticked up.
• An employment gauge fell to the lowest since April. A Labor Department report earlier Friday from showed factory payrolls increased by 13,000, the weakest gain in five months.
• Measures of customer and business inventories also rose.
• The ISM manufacturing gauge hasn’t fallen below the 50 line between expansion and contraction since August 2016.
• The initially reported December reading of 54.1 was revised up to 54.3 last week.