The Commerce Department said factory orders rose 1.2 percent in December to a seasonally adjusted $322.2 billion after a revised 4.3 percent decline in November.
The latest increase was roughly in line with the 1.1 percent gain forecast by economists in a Reuters poll, and was the second increase in the last three months.
Despite the latest gain, factory orders for the year were well below levels seen in the previous year. Orders fell 8.5 percent in 2001 on a year-over-year basis, the largest decline on record since comparable records began in 1992.
Manufacturers have borne the brunt of the recession that began in March. To cope, they have sharply cut production, trimmed hours and laid off workers. Last year, factories shed 1.3 million jobs, or about 7 percent of their work force.
The Institute for Supply Management reported last week that its index of business activity rose to 49.9 in January from 48.1 the month before, another signal of improvement in the manufacturing sector, which has been mired in a 17-month long slump. An index above 50 indicates manufacturing growth.
Also last week, the government reported that durable-goods orders rose by a bigger-than-expected 2 percent in December.
Before manufacturing can fully recover, however, businesses will have to crank up investment again and foreign companies and consumers must increase their spending on American-made goods, which would boost U.S. exports, economistsay.
Tuesday's factory reports showed that orders for computers and electronics products rose by 3.1 percent in December, on top of a 0.8 percent gain the previous month.
Semiconductors posted a strong 12.7 percent increase, after falling by 3.7 percent in November, a good sign for the high-tech sector, which took a big hit when companies scaled back capital spending in response to the economic slump.
Orders for household appliances rose by 2.8 percent in December, following a 6.3 percent advance, and orders for electrical lighting equipment rose by 2.5 percent, after falling by 7.4 percent in November.
For transportation equipment, orders grew by 3.6 percent, after plunging by 20 percent the month before. December's increase was mostly due to orders for missiles and space equipment, the government said. Orders for cars dipped by 0.2 percent in December as free financing and other incentives waned.
Excluding the volatile transportation sector, which includes such expensive items as airplanes and military tanks, orders rose by a solid 0.8 percent in December. Orders for nondefense goods orders grew by 1 percent, the third increase in the last five months.
The Federal Reserve, citing signs of an economic rebound, left interest rates unchanged last week. The central bank cut short-term rates 11 times last year, pushing down the prime rate a benchmark for consumer and business loans to its lowest point since November 1965.
Many economists say those rate reductions will allow the country to return to a healthy rate of growth in the second half of this year.
Still, as evidence of just how much damage has been inflicted on the manufacturing sector, the Commerce Department said that for all of 2001 factory orders fell by a record 8.5 percent. That's the biggest drop since the government began keeping records using the current classification system in 1992. In 2000, orders rose by 7.1 percent.
© MMII, CBS Worldwide Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press and Reuters Limited contributed to this report