A widely followed nationwide index on U.S. manufacturing could show the sector back on a growth path when the next report comes out in early September.

The Institute for Supply Management's manufacturing index could top 50 next month, if it stays on its upward trend, said Norbert Ore, chair of the ISM manufacturing business survey committee, on Monday.

This is the second month we've seen continuing growth in production, Ore said. This is the business cycle working the way it's supposed to.

Speaking with reporters on a teleconference after the July ISM index was released, Ore said the data was probably emitting more positive signals right now than the comments of the purchasing managers that make up the membership of the ISM.

The data right now is probably more positive than the comments of our members, he said. I don't expect new orders and production to improve all that much over where they are now. I don't think there's that kind of momentum right now based on the comments we're getting from members.

Manufacturers have had a tough time, Ore said. They don't feel like there's a strong rebound coming.

Ore observed that the rate of decline in employment had declined and said inventories appear to have bottomed in terms of the rate of decline.

We saw an improvement (in inventories), he said. It wouldn't be out of the question for inventories to improve, particularly now that we've seen customer inventories below 50 for four consecutive months, he said.

The ISM manufacturing index's price index also rose.

Prices are up; before that they were deflationary, Ore said. We're seeing some pricing power in commodities, in plastics, in steel. That's a positive sign for the sector.

The Institute for Supply Management said its index of national factory activity rose to 48.9 in July from 44.8 in June. The July reading was the highest since August 2008.

A reading below 50 indicates contraction in manufacturing. The ISM index has not been above 50 since January 2008.

(Editing by James Dalgleish)