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Manufacturing revs up in January

By Annalyn Censky, staff reporter

NEW YORK (CNNMoney) -- The manufacturing sector started off 2011 with a bang, growing at its fastest pace in more than six years, a purchasing managers' group said Tuesday.

The Institute for Supply Management's index for manufacturing activity climbed to 60.8 in January, up from 58.5 in December.

Any reading above 50 indicates expansion, and the index has remained above that level for 18 consecutive months.

While January's index is at the strongest level since May 2004, one of its components could foreshadow inflation as a threat to the economy down the road.

The ISM Prices Index, which measures the cost of raw materials used in the manufacturing process, surged ahead to 81.5, up from 72.5 in December.

"There is inflation in the pipeline -- not double digits but enough to keep buyers on their toes," John Silvia, Wells Fargo chief economist said in a research note. "There is very long list of price increases for commodities and corn, soybean oil and sugar are in there -- not wheat."

Improved employment conditions and stronger demand helped drive the overall index higher.

The employment index reached 61.7, the first time it has ticked above 60 since May 2004. The new orders component also ticked up to 67.8 from 62 in December.

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