Midwest Manufacturing Sector Jumps Out of Contraction in January

Business activity across the Midwest rebounded in January as producers saw a sharp increase in orders, adding to hopes that the U.S. economy claws back in the first quarter after an anemic end to last year.

The Chicago Business Barometer, also known as the Chicago PMI, jumped to 55.6 from 42.9 in December, marking the best clip of growth in a year. Readings above 50 represent expansion.

Economists surveyed by The Wall Street Journal anticipated a much smaller improvement to 46.0.

A surge in new orders boosted activity in the region, with a gauge of new business rising more than 20 points to 58.8, the best in 12 months. Production, meanwhile, moved back to positive territory.

Though the report was much stronger than expected, Philip Uglow, chief economist of MNI Indicators, the compiler of the report, expressed caution. "Previously, surges of such magnitude have not been maintained so we would expect to see some easing in February," he said.

"Still, even if activity does moderate somewhat next month," he said, "the latest increase supports the view that GDP will bounce back in Q1 following the expected slowdown in Q4."

Earlier Friday morning, the Commerce Department reported that the U.S. economy grew just 0.7% in the fourth quarter of 2015, down from a 2% clip in the third quarter and a 3.9% pace in the second quarter amid global weakness and financial market turmoil.

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com