The Institute for Supply Management said Wednesday that its index of manufacturing activity rose to 50.7 in December from 49.5 in the previous month. November's reading was the lowest reading since July 2009, one month after the recession ended.
A reading above 50 signals expansion.
A measure of employment rose to the highest level in three months, suggesting that factories are adding jobs.
The closely watched survey was completed before Congress reached a deal to avoid the "fiscal cliff."
The last-minute deal passed Tuesday averts widespread tax increases and delays deep spending cuts that had threatened to push the country back into recession. Still, most Americans will see some increase in taxes this year, which will likely slow consumer spending.
There have been some positive signs for factory output. In November, companies substantially increased their orders for a category of large equipment that reflects their investment plans. That followed a big increase in the same category in October.
The economy grew at a 3.1 percent annual rate in the July-September quarter, much better than the 1.3 percent pace in the April-June quarter. But economists expect growth will slow in the current quarter, partly because of the uncertainties surrounding the fiscal cliff, to below a 2 percent pace.