A reading above 50 indicates expansion. The media forecast in a Bloomberg News survey of economists projected the gauge would drop to 48.5, showing the first contraction since July 2009, just after the recession officially ended.

"To call this a relief is something of an understatement," Ian Shepherdson, an economist at High Frequency Economics, said of the fact that the ISM data does not indicate contraction. "It could have been horrendous."

Economic activity in the nation's manufacturing sector has expanded for 25 consecutive months, while the overall economy has grown for 27 months straight.

"The past relationship between the PMI and the overall economy indicates that the average PMI for January through August (56.8 percent) corresponds to a 5 percent increase in real gross domestic product (GDP)," Bradley J. Holcomb, chair of the ISM Manufacturing Business Survey Committee, said in a statement. "In addition, if the PMI for August (50.6 percent) is annualized, it corresponds to a 2.8 percent increase in real GDP annually."

Of the 18 manufacturing industries tracked by ISM, 10 reported growth in August: wood products; petroleum and coal products; miscellaneous manufacturing; food, beverage and tobacco products; fabricated metal products; paper products; transportation equipment; chemical products; computer and electronic products; and machinery.

Six industries reported contraction last month: plastics and rubber products; textile mills; nonmetallic mineral products; electrical equipment, appliances and components; apparel, leather and allied products; and primary metals.

Although the August data reflect continued growth at the nation's factories, the PMI has now slowed for six months in a row.

"More disturbingly, the production index fell 3.7 percentage points to 48.6, while new orders data remained in contraction territory for the second consecutive month," Cliff Waldman, an economist for the Manufacturers Alliance/MAPI, wrote in an analysis of the ISM report. "Further, the third consecutive month in which the backlog of orders index was below 50 percent has dour implications for the strength of near-term production activity."

The ISM index of new orders registered 49.6 in August, up slightly from 49.2 in July, while inventories rose to 52.3 from 49.3.

The backlog of orders index registered 46 in August, 1 percentage point higher than in July. Of the 86 percent of respondents who reported their backlog of orders, 15 percent reported greater backlogs, 23 percent reported smaller backlogs and 62 percent reported no change from July.

Meanwhile, the employment gauge slipped from 53.5 to 51.8, its lowest level since November 2009.

Anecdotally, purchasing managers indicated a rise in caution. "Business is soft, confidence is down, and we are cutting inventory and expenses," one respondent from the machinery sector said. "We continue to post solid numbers, but the situation seems tenuous," another executive, in plastics and rubber products, said.

A separate report last week showed that U.S. factory orders jumped in July.

"Amidst slow growth and fears of recession in the U.S. economy, as well as clear evidence of weakening economic activity around the world, the outlook for U.S. manufacturing remains for moderating but positive growth with clear downside risks," according to Waldman.