The U.S. manufacturing sector shrank for the second month in a row in July as new orders improved modestly, but on a economic positive note, U.S. construction spending rose in June.

The Institute for Supply Management (ISM) said its index of national factory activity inched up to 49.8 from 49.7 in June, shy of economists' expectations for 50.2. A reading below 50 shows contraction in the sector.

Forward-looking new orders remained in contraction territory but improved to 48 from 47.8. The gauge of employment slid to its lowest level since December 2009 at 52 from 56.6. Exports continued to tumble and were down at 46.5 from 47.5. The index has lost 13 points since February.

A separate gauge showed that construction spending rose modestly in June as investment in new homes and in home improvement countered a drop-off in public works projects funded by the federal government.

Total construction spending increased 0.4 percent during the month to an annual rate of $842 billion, the Commerce Department said on Wednesday. That was spot on the median forecast in a Reuters poll of economists.

Housing has become one of the few bright spots in the U.S. economy this year, with spending on residential construction up 1.3 percent in June.

Government construction spending was flat during the month, with public works projects by the federal government down 1.6 percent.

Source: CNBC