Like the ISM index, a reading above 50 indicates the manufacturing sector is expanding.
The production index gained almost two points to 65.8 per cent, while new orders surged 5.4 points to 69.4 per cent, the strongest since January 2004 and marking seven straight months above 60.
The Employment Index declined 2.7 points to 57.0 in December, indicating expansion for the fifteenth consecutive month.
Two readings of the nation's manufacturing sector showed solid increases in December with one showing the strongest growth in almost three years while another report showed construction spending hit a record high.
Manufacturers expected to see six months of price increases for some raw materials in the wake of the late summer hurricanes - especially Hurricane Harvey's hit to the key chemical and oil production facilities in Houston.
The December PMI registered 59.7, an increase of 1.5 percentage points from the November reading of 58.2.
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Of the 18 manufacturing industries, 16 reported growth in December, including machinery, transportation equipment and electrical equipment.
Only the Wood Products and Textile Mills industry segments reported declining numbers in December.
ISM's semi-annual forecast released last month showed 65 per cent of firms surveyed had difficulty hiring new employees and 44 per cent increased starting pay to attract new workers. New orders tend to lead the other components, so this suggests that the headline index should rise above 60 over the next couple of months.
The group's New Orders Index came in at 69.4%, the highest since January 2004 when the index registered 70.6%.
The latest data brings the average reading in 2017 to 57.6, the highest level in 13 years.
New orders to manufacturers was the report's major highlight, reaching an nearly 14-year-high, ISM said.