The November Chicago PMI index increased sharply to 57.6 from 50.6 the previous month. This was well above consensus expectations of an increase to 52.2 and also the strongest reading since January 2015.
The three-month average increased to 54.1 from 52.1 previously which indicates some underlying momentum in the sector, although the data series is notoriously volatile on a monthly basis.
Production recovered ground on the month and there was a strong increase in the new orders component to 63.2 from 52.5 in October, the strongest increase since June, while order backlogs increased for the first time in four months.
The increase in new orders and backlogs will support a further near-term increase in production. Companies also increased inventory levels at the fastest pace since October 2015.
In contrast, there was a small decline in employment for the month after gains seen last month. There was a small decline in the prices paid index to 56.8, although it remained well above the 12-month average of 52.2.
The data overall will underpin near-term confidence in manufacturing, although the national ISM data will be watched closely on Thursday, especially with concerns that a stronger dollar will quickly start to have a negative impact on the sector.
The dollar maintained a strong tone following the data, although much of the movement was being driven by higher oil prices. USD/JPY was close to daily highs near 113.70 while Treasuries continued to record sharp losses with a slide of close to 25 ticks on the day. US equity markets remained in positive territory, but off initial highs.