MoreA separate report showed consumer spending was held back in January by a cooling in auto sales, but revisions left consumption running at a brisk clip this quarter.
Rounding out the data, poor weather caused construction spending to fall unexpectedly in January, but the blow was softened by upward revisions to December's data.
"Essentially, the economy's on a roll," declared Ram Bhagavatula, chief economist at RBS Financial Markets. "We're looking for growth of 5.0 percent this quarter. At that pace, employment has to revive at some point, and maybe soon."
With price pressures also rising, at least at the production level, Bhagavatula sees a real chance the Federal Reserve could be hustled into hiking interest rates by the summer.
The Treasury market slipped as a result of the manufacturing report, although investors are still not pricing in much risk of a rate rise until September, while equities held their early gains.
The Institute for Supply Management's closely watched manufacturing index pulled back modestly, to 61.4 in February from 63.6 in January, a 20-year high. Since a reading over 50 indicates growth, the index suggested activity remained strong.
The real surprise was in the employment index, which advanced to 56.3 in February, its best reading since early 1987, from January's 52.9. That held out hope for some improvement in manufacturing jobs when the February payrolls report is released on Friday. The sector has shed almost 3 million jobs since mid-2000, making it one of the most contentious issues in this year's presidential elections.
Analysts were also taken aback by a leap in the ISM's prices paid component, to an eight-year peak of 81.5, in part due to a jump in the cost of steel. That bode ill for inflation going forward, although analysts note that global competition is so fierce that companies have been unable to pass higher prices on to consumers.
The Commerce Department said spending dipped 0.3 percent in January, after an upwardly revised 0.6 percent increase in December, to a $931.18 billion annual pace. The drop was the first since May 2003 and came despite Wall Street economists' projections for a slight gain of 0.2 percent.
Other data released on Monday showed the Fed's favored inflation measure, the personal consumption expenditures deflator, rose at an annual rate of just 0.8 percent in January after touching a four-decade trough of 0.7 percent in December.
