WASHINGTON—A gauge of U.S. manufacturing activity rose for the second straight month in June to its highest level since February 2015, putting the sector on stable footing for the second half of the year.
The Institute for Supply Management on Friday said its index of manufacturing activity rose to 53.2 in June from 51.3 in May. A reading above 50 indicates that factory activity is expanding while a reading below 50 signals contraction.
Friday's report "suggests that the long-suffering manufacturing sector may finally be starting to recover," said Andrew Hunter, an economist at Capital Economics. But he warned against expectations of a "major rebound" soon, noting that similar indexes from around the world indicated little evidence of strong global demand.
The ISM factory gauge fell to 50 last September and remained in contractionary territory for the next five months, turning the corner into expansion only in March, where it has stayed for the past four months.
The report offered some optimistic details. The indexes for both new orders and production rose in June, and both have been expanding for the past six months. Meanwhile, the exports index hit its highest level since November 2014. But some economists said the Brexit vote could hamper the sector going forward.
"Trade faces another bout of strong-dollar drag on output, even if the worst of that will not hit for several months," said Michael Montgomery, U.S. economist at IHS Global Insight. "At least this report offers the hope that manufacturing might have been in better shape before the new drag hits and thus better able to tolerate it."
A special supplement to the survey, conducted by ISM following the June 23 U.K. referendum, showed that most of the manufacturers polled ranked the impact on the dollar as Brexit's biggest fallout. Two-thirds said they were "somewhat concerned" about its impact on manufacturing, but not enough to alter their business strategy. "A strong majority of those queried believed Brexit would have a negligible impact on their capital spending plans," the report said.
That could be because the majority of the firms surveyed cater to the large U.S. market. Broadly, manufacturers with domestic consumers, such as auto makers and chemical producers, have been largely insulated from the global economic turmoil, as modest economic growth in the U.S. still makes it a relative bright spot in a dim global picture.
"The fundamentals are pretty darn solid," said Bradley Holcomb, who directs the survey, citing robust consumer confidence and consumer spending. "It all really boils down to that—consumers going to the store to buy stuff."
American manufacturers tied to the auto industry have also been reaping the benefits of low gasoline prices. Drivers are spending more time on the road, and auto sales hit a record in 2015.
More miles traveled are a boon for car parts manufacturer Motorcar Parts of America Inc. CEO Selwyn Joffe said June was poised for a rebound after "perplexing" softness the prior two months. He added other tailwinds—such as the increasing average age of the U.S.'s vehicle fleet and a tendency for people to keep their cars for longer—would translate to growing sales of replacement parts.
"All of these factors bode well for both current and future business," Mr. Joffe said in a June earnings call.
Whether that translates into more manufacturing jobs—a hot topic on the campaign trail—remains to be seen. The employment subindex returned to growth last month after six straight months in contraction, but it is still below the level consistent with a rise in factory-sector payrolls.
Industrial output has fallen since the end of 2014 as low oil prices depressed domestic energy production and export demand faltered due to weak growth overseas and the strong dollar. The latter makes U.S.-made goods more expensive for foreign customers. Low commodity prices had also weighed on demand for mining, drilling and farming equipment.
But some of the factors weighing on manufacturers may be fading. Oil prices have moved higher in recent months. The dollar has weakened from the start of the year, but June's Brexit vote has sent it higher. Concerns about economic growth in emerging markets, especially China, are less pronounced than they were at the beginning of the year, although Brexit has sparked renewed uncertainty.
Signs from the sector recently have been mixed. The Federal Reserve's manufacturing gauge showed the sector declining 0.4% in May from the prior month on a large drop in motor vehicle and parts production, after rising in April. Orders for long-lasting factory goods fell broadly in May, a sign that U.S. business investment in new equipment remained soft this spring, the Commerce Department said in late June.
Private data provider Markit said Friday its U.S. manufacturing index rose in June to a three-month high of 51.3—but it capped the index's worst quarter in six years.
And China and Japan's manufacturing sectors contracted in June, according to Markit. The Eurozone and U.K. indexes rose to six- and five-month highs, respectively, but both Markit surveys noted that responses were received before the Brexit referendum.
Write to Anna Louie Sussman at anna.sussman@wsj.com
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