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he Institute for Supply Management reported Monday that its manufacturing index for July rose to 56.6, the highest level this year.

ISM reported its factory index rose from 53.8 in June, which was the first month of increases following six straight months of declines. The May reading had been the lowest since June 2003. (Click here for previous coverage.)

eadings higher than 50 indicate growth, and manufacturing has shown expansion since May 2003. Analysts had expected the July reading to rise to 54.5, Bloomberg reported.

The group's new orders gauge, which makes up about a third of the total index, was the highest of the year, rising to 60.6, from 57.2 in June. The production index, a measure of work being performed, rose to 61.2, the highest since September, from 55.6.

“An improved rate of growth in new orders and production continues to drive improvement in the sector. It appears that the sector hit a low point in May, and has rebounded nicely in June and July,” said Norbert Ore, chairman of ISM’s manufacturing committee.

But he added that one respondent said that “high oil prices continue to play havoc on business projections.”

SM’s employment index rose to 53.2 from 49.9 in June. The inventories index fell slightly to 47.5, from 47.8, while new export orders jumped to 55.9 from 50.4, ISM said.

ISM, headquartered in Tempe, Ariz., surveys more than 400 companies in 20 industries, including transportation, to compile its index.