Activity in the Transportation Equipment sector, which includes automobiles, expanded in December, the U.S.-based Institute for Supply Management said Monday. (Canadian Press)

A closely watched U.S. economic indicator suggests manufacturing activity expanded at the fastest pace in three years in December.

The Institute for Supply Management, a trade group of purchasing executives, says its manufacturing index was at 55.9 in December after touching 53.6 in November. A reading above 50 indicates growth.

It was the fifth straight month of expansion in the manufacturing sector, according to the index. Overall, nine of the 18 industries within the manufacturing sector expanded.

"The recovery in manufacturing is continuing, but there are still some industries mired in the downturn as evidenced by the seven industries still in decline," ISM chair Norbert J. Ore said.

New orders, a signal of future production, jumped to 65.5 from 60.3 in November. Meanwhile, the pricing index hit 61.5, up from 55 in November.

The U.S. ISM data is in keeping with similar indices showing manufacturing expansion in the U.K., Europe and China during the month.

Calling the showing a "very strong report," TD Bank Financial Group economist Millan Mulraine said it could be further indication of sustained recovery for the world's largest economy.

"Given the fairly good historical performance of this indicator in tracking U.S. economic activity, the big improvement in the headline index is pointing to further pick-up in U.S. GDP," he said.