Manufacturing unexpectedly grew in August and fewer Americans filed new claims for jobless aid last week, despite a slump in confidence that threatened to push the economy back into recession.

The reports on Thursday were the latest in a series to suggest the economy remained on a slow-growth path and offered hope it would dodge a recession.

I am breathing a little sigh of relief that the bit of data that we have had over the course of August is weak but not giving the recessionary type of signal, said Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh.

More light will be shed on the health of the world's largest economy when the government releases its closely watched employment report for August on Friday.

The Institute for Supply Management's index of national factory activity edged down to 50.6 from 50.9 in July, confounding economists' expectations for a fall to 48.5.

A reading below 50 indicates a contraction in the nation's factory sector. Initial claims for state unemployment benefits dropped 12,000 to a 409,000, a separate report from the Labor Department showed.

The drop in claims offered no sign layoffs have picked up in the wake of slumping business and consumer confidence on the back of a steep plunge in the stock market last month and Standard & Poor's decision to strip the nation of its AAA credit rating.

But claims are still above the 400,000 usually associated with a stable labor market and key details of the ISM survey, including production, new orders and employment were weak.

NO RECESSION

The ISM survey is consistent with an economy staggering forward at a weak pace of growth. When the economy tips into recession, the ISM index usually drops into the low 40s, said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

Data ranging from consumer spending to industrial production have showed some strength in the economy after output barely grew in the first half of the year. Economists now see the odds of a recession down to between 20 and 30 percent from as high as 50 percent last month.

Other reports on Thursday suggested consumers also did not pull back in August, with some top U.S. retailers reporting better-than-expected sales last month, despite sagging consumer confidence and Hurricane Irene.

Major automakers posted double-digit sales gains in August, with General Motors reporting an 18 percent rise in sales from the year earlier and rival Ford logging an 11 percent increase.

A strike by about 45,000 Verizon Communications workers likely dampened employment growth last month. Nonfarm payrolls are forecast to have risen 75,000 in August, according to a Reuters poll, after increasing 117,000 in July. The unemployment rate is seen steady at 9.1 percent.

Economists at Goldman Sachs cut their forecast for August payrolls growth to 25,000 from 50,000, citing weakness in online job postings in recent months.

Lingering weakness in the economy was underscored by nonfarm productivity falling at a 0.7 percent annual rate in the second quarter -- the biggest decline since the fourth quarter of 2008.

Normally, a slowdown in productivity suggests businesses have to add new workers to meet production, but against the backdrop of an economy growing at a near stall-speed, it implies businesses might have to cut costs to protect profits.

And businesses could already be facing some cost pressures. Unit labor costs grew at a 3.3 percent rate in the second quarter, a puzzling development given the high unemployment rate.

In our view, the rise reflects a labor market that has less spare capacity than may be commonly perceived, in which case, rising labor costs are likely to continue, said Troy Davig, an economist at Barclays Capital in New York.

But the pace is still slower than the 6.2 percent rate in the first quarter, indicating wage pressures remain too well contained to stoke a broader rise in inflation.

Unemployment Inflation