The U.S. Institute for Supply Management’s index rose to 55.9 in December, up from 53.6 in November and reaching its highest level in almost three years. Anything above 50 indicates growth.

New orders jumped more than five points in the month to 65.5 from 60.3 in November in yet another strong indicator American’s factory floors are returning to action after almost two years of falling output and layoffs.

“It’s huge,” said Derek Holt, vice-president of economics with Scotia Capital. “If the U.S. manufacturing sector really is stabilizing and recovering, then given the seamless the cross-border integration of manufacturing production, it’s going to be a boon to Canada as well.”

“The trillion-dollar question is: Is it believable?” Holt said.

The index first registered growth in August after 18 months of contraction, hitting a low of 32.9 a year earlier.

It is also in line with other, better factory indicators coming out of China, the United Kingdom and Europe.

In another encouraging signal to start of 2010, the Royal Bank’s recent consumer confidence survey shows a strong majority of Canadians believe the economy will improve this year and fewer planned to delay major purchases.

Overall, the bank’s index was up eight percentage points in December from November, although one in five said they were still worried that a member of their household could lose their job.

“It’s gratifying to see the recovery is continuing (and), if anything, it seems to be gaining momentum,” said economist Douglas Porter of BMO Capital Markets.

Both economists, however, cautioned that the ISM index would need to reach 60 to signal a truly robust recovery, and added that the latest report is inconsistent with some other indicators.

Holt noted that the ISM showed manufacturing employment increasing and inventories contracting in opposition to other recent data coming from the United States.

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Tags: ISM, manufacturing, production, recovery, Supply