U.S. manufacturing activity sagged again in July, rounding out the worst year for the sickly factory sector since the last recession a decade ago, an industry report showed on Wednesday.

The National Association of Purchasing Management said its monthly manufacturing index fell to 43.6 in July from 44.7 in June, bruising hopes the sector would show clearer signs of clawing out of a deep and prolonged slump.

A reading under 50 signals manufacturing activity -- more than one-sixth of the overall economy -- is contracting. The index has held under that watershed level since August 2000, although July's reading left it above January's decade low of 41.2.

The NAPM new orders index, a crucial indicator of demand for factory goods in the pipeline, slipped to 46.3 from 48.6 in June. While new orders slipped in July, they were in somewhat better shape than earlier this year.

The report also showed firms liquidated inventories at a quicker pace. Manufacturers must clear out overstocked shelves before production can rev up again. The NAPM inventories index fell to 35.8 from 40.8 in June.