The Institute for Supply Management (ISM) said its index of national factory activity rose to 55.7 in August from 55.4 the prior month, comfortably beating expectations for 54. It was the highest reading since June 2011.
A reading above 50 indicates expansion in the sector.
New orders also marked their best level in more than two years, with that sub-index jumping to 63.2 from 58.3. Employment, however, slipped to 53.3 from 54.4.
Manufacturing has been hurt this year by cuts in government spending and weaker global demand, causing the sector to shrink in May. But sizable increases in activity in July and August are adding to economists' views that U.S. goods-producing companies are finding their footing as the year wears on.
Data last week showed the economy grew at a quicker-than-expected pace in the second quarter and should continue to gain momentum.
(Reporting By Steven C. Johnson; Editing by Chizu Nomiyama)