U.S. manufacturing snapped a four-month slump in July and expanded, with factories revving up output on the back of surging orders and boosting hopes the economy is headed for a full-fledged recovery.

The Institute for Supply Management (search) said Friday its manufacturing index pushed up to 51.8 in July, matching economists' projections and gaining from 49.8 in June.

A reading above 50 in the index signals growth in the industrial sector that makes up about a sixth of the economy and has been hardest hit by the recession and meager recovery the past few years.

The jump in the ISM index was just the latest evidence that the economy's latest woes surrounding the Iraq war are fading and that conditions may be taking shape for what is still missing for full-throttled growth — business investment and eventually hiring.

A breakdown of the ISM components also pointed to yet stronger growth in coming months, with production rising as factory owners stepped up activity to fill the new orders pouring in. However, workers were cut for the 34th straight month.