The outlook for inflation worsened. An index of prices paid for raw materials rose to 61in December from 56.6 in November. In their meeting Dec. 19, Fed policy-makers said``while some inflation risks still persist, they are diminished by the more moderate paceof economic activity and by the absence of any indication that longer-term inflationexpectations have increased.'' Economists say contraction in manufacturing doesn't necessarily signal a recessionacross the economy. A reading in the NAPM index above 42.4 generally indicates anexpansion in the overall economy, according to the industry group. The last time theindex was below that level was in March 1991, at the end of the last recession.Moreover, the NAPM index held below 50 for eight straight months at the end of 1998,during a time when the economy expanded at a 4.5 percent annual rate. Analysts surveyed by Bloomberg News expect the U.S. to avoid recession in 2001,aided by a second-half spurt that is likely to boost growth for the year to 3 percent. Still,manufacturers are probably in for more months of decline, economists said. Besides cutbacks at automakers, ``you've got New England injured by rising gas andenergy prices,'' and the economic slowdown ``can't help but affect the new economyand sales of personal computers,'' said David Littman, chief economist at ComericaBank in New York.