Manufacturing sector contracts for second straight month

The manufacturing sector contracted in July for the second straight month, a reflection of the sluggish economy. 

Activity increased to 49.8 percent from 49.7 in June, the Institute for Supply Management reported on Wednesday. 

A reading below 50 indicates contraction; this is only the second time since July 2009 that the index has gone below that level.  

Manufacturing has been a key driver of the economic recovery, despite its overall contribution, but has slowed down as the nation's recovery has hit a rough patch in recent months.

Still, the sector would have to slow considerably more to indicate a coming recession, down to around 43. 

New orders also were up to 48 percent from 47.8 as the contraction slowed slightly.

Employment also continued expanding but at a slower rate, down to 52 percent from 56.6. 

Businesses have shown a greater reluctance to hire as the financial crisis in Europe continues and Congress puts off work on solving the so-called fiscal cliff, a mix of spending cuts and tax increases set to hit in 2013. 

They also began filling their stock rooms in July, as inventories contracted at a slower rate up to 49 from 44 percent.