The Institute for Supply Management, a trade group of purchasing managers, said Wednesday that its manufacturing index rose to 53.5 last month from 52.8 in May. Manufacturing activity matched January's level for the highest this year. Any reading above 50 signals expansion.
Manufacturing growth has accelerated for the past two months, evidence that U.S. factories are beginning to adapt and overcome the drags caused by a rise in the dollar's value and cheaper oil prices, two trends that date back to last fall.
The index's measure of production fell, but it remained above 50. The gauge of new orders rose slightly to 56 from 55.8. But manufacturers are responding to the increased demand by hiring more workers, as the employment measure increased to 55.5 from 51.7, a sign that many companies expect additional orders in the coming months and are hiring in advance.
"When it goes up like that, it's in anticipation of future orders," said Bradley Holcombe, chairman of I.S.M.'s manufacturing business survey committee.
Falling oil prices forced energy companies to curtail orders for new equipment and pipelines as their margins were squeezed and rigs were shut down. The stronger dollar made U.S. goods more expensive overseas, which weighed on sales.
Those two trends seem to have tailed off.
Oil has stabilized at around $60 a barrel. It had plunged as low as $50 a barrel at the start of the year from roughly $110 in June 2014. The decrease caused a decline in oil refining in May that weighed on factory output, according to the Federal Reserve.
The dollar, too, has steadied in recent months. While U.S. currency will continue to be a drag on exports, manufacturers say they can at least adjust production schedules to account for it.
This leaves manufacturers dependent on greater demand domestically from consumers. Solid job growth over the past year has flowed into spending on cars and trucks, which should bolster manufacturing. Auto sales rose 2 per cent in May compared to the prior year, as people bought 1.64 million cars and trucks, the highest total since July 2005, according to Autodata Corp.