But the lingering effects of lower oil prices and a strong dollar will continue to constrain factory activity for a while, economists say. Other data on Tuesday showed new home sales increased to a more than seven-year high in May. 

Manufacturing is lagging an overall rebound in the economy after output slumped at the start of the year. Despite the weakness in factory activity, the Federal Reserve is expected to raise interest rates this year.

The Commerce Department said on Tuesday non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 0.4 percent last month. These so-called core capital goods orders slipped 0.3 percent in April.

"These are encouraging signs ... we need to see further gains over the next couple of months before we can more firmly conclude that manufacturing orders are rebounding," said John Ryding, chief economist at RDQ Economics in New York.