By Vicki Needham - 08/01/12 05:12 PM EDT
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.