Manufacturing in the New York region shrank for a fifth straight month in December, while an increase in optimism about the next six months signals factories are poised to rebound should the federal government resolve its impasse over fiscal policy, Bloomberg reported.

The Federal Reserve Bank of New York’s general economic index dropped to minus 8.1 from minus 5.2 in November. Economists monitor the gauge and other regional releases for clues about the direction of U.S. manufacturing. Readings of less than zero signal contraction in New York, northern New Jersey and southern Connecticut.

Companies from Verizon Communications Inc. to Rockwell Collins Inc. have said they don’t plan to boost investment amid concern lawmakers will not avert more than $600 billion in tax increases and budget cuts slated to take effect in 2013. Nonetheless, growing optimism about the outlook indicates manufacturers are looking beyond the short term as housing improves and consumer spending climbs.

“The biggest challenge for manufacturing is lack of confidence due to uncertainty in fiscal policy,” said Tom Simons, an economist at Jefferies Group Inc. in New York, who projected a reading of minus 5 for the gauge. “That is slowing down activity. There are reasons for manufacturing to come back but it’s going to be a couple of months before we start to see the acceleration.” Read more.