NEW YORK (CNN/Money) - Manufacturing activity in the United States grew at a much slower pace in July, the nation's purchasing managers said Thursday, the sixth straight month of expansion following a long slump in the industry.

The Institute for Supply Management (ISM) said its key gauge of manufacturing activity fell to 50.5 in July from 56.2 in June. Any reading over 50 indicates expansion, but economists expected a reading of 55.0, according to Briefing.com.

Stocks headed lower in morning trading Thursday following the report and disappointing earnings news from Dow component ExxonMobil.

"For manufacturing, July was only slightly better than June. The PMI declined, but still indicated growth as 12 industries reported improvement in July," survey committee Chairman Norbert Ore said. "The decline in the PMI was primarily driven by a weak showing in July's new orders, which may be due to a pause in inventory replenishment."

Separately Thursday, the Commerce Department said June construction spending declined 2.2 percent to an annual rate of $820.8 billion, compared with a revised 2 percent decline in May.

The ISM index was below 50 for 18 straight months between 2000 and 2001, as the industry fell into a prolonged slump following a boom in business spending at the end of the 1990s. When businesses stopped spending, production shut down and more than 1.5 million jobs were cut, triggering a recession in the broader economy.

For this reason, Federal Reserve Chairman Alan Greenspan and other economists believe business spending will be key to the broader economy's recovery, and continuing growth in the ISM index raises hope that spending is on the mend.

The ISM's production index fell to 55.7 percent from 61.4 percent in June. Its new orders index fell to 50.4 percent from 63.1 percent. And its employment index fell to 45 percent from 49.7 in June.