Manufacturing activity grew at a faster pace in July than in the previous month, driven by new orders and increased production, the Institute for Supply Management (search) said Monday.

The ISM, a private research group, said its manufacturing index rose to 56.6 last month, up from 53.8 in June and greater than the 54.1 that analysts were expecting.

It was the 26th consecutive monthly increase in the index. A reading of 50 or above in the index means the manufacturing sector is expanding. A figure below 50 represents a contraction.

The new orders index rose to 60.6 in July from 57.2 in June while the production index surged to 61.2 from 55.6 a month earlier.

Lower prices also helped fuel the rise in the overall index. The price index decreased to 48.5 in July from 50.5 in June.

"The prices index apparently reached the end of its run in June, as the July index indicates that pricing power, at least for the short term, is now once again favoring buyers" Norbert J. Ore, chair of ISM's Manufacturing Business Survey committee, said in a release.

Meanwhile, the Commerce Department (search) said Monday that builders trimmed spending on construction projects around the country in June, marking the fourth consecutive monthly cutback. Analysts has expected a rise of 0.5 percent.

Spending on all construction projects dipped by 0.3 percent in June from the previous month. Even with the decline, though, the value of all projects was still at a healthy level of $1.1 trillion, at a seasonally adjusted annualized rate.