By Jeffrey Sparshott 

U.S. manufacturers expanded at a slower pace in July, according to a survey released Monday by the Institute for Supply Management, the latest signs of tepid growth in the sector.

The ISM's manufacturing purchasing managers index fell to 52.7 in July from 53.5 in June. A reading above 50 indicates that the manufacturing economy is generally expanding.

The July numbers are the latest in a string of mixed reports for U.S. factories, which have struggled to overcome a stronger dollar, weak overseas demand and a rocky first quarter.

"Obviously we've been kind of up and down, with signs of hope followed by some level of disappointment," said Bradley Holcomb, who oversees the ISM survey. "Nevertheless, you've got to like the fact that we've been growing for 31 consecutive months. And I don't see anything in terms of headwinds that would slow us down at all."

In one positive sign, the ISM new orders index increased to 56.5 last month from 56 in June. The new orders component of the index, now up for four straight months, is often viewed as a leading indicator of activity. The ISM production index climbed to 56 from 54.

But the employment index decreased to 52.7 in July from 55.5 in June, figures that may coincide with softer payroll gains for the month. The Labor Department will release the July employment report Friday. Economists surveyed by The Wall Street Journal think the U.S. economy added about 215,000 jobs last month, down from 223,000 in June.

And the ISM exports index dropped to 48 from 49.5, a possible reflection of soft global growth and the relative strength of the dollar.

A separate survey out Monday also suggested solid gains for new orders and production volumes alongside moderating job creation. The final U.S. purchasing managers' index compiled by data provider Markit ticked up to a seasonally adjusted 53.8 in July from a final June reading of 53.6.

"On net, the surveys suggest a manufacturing sector that has yet to shake off the malaise that has been apparent since the end of last year, " said Jesse Edgerton, economist at J.P. Morgan Securities.

The ISM survey also showed companies benefitting from lower raw material prices and drawing down inventories.

Steel Dynamics Inc. is caught in the crosscurrents of falling commodity prices, a strong dollar and signs of rising demand from some U.S. industries. The Fort Wayne, Ind.-based company this spring opted to idle its Minnesota ironmaking operations due to low prices for iron ore and is fighting off a surge of cheaper imported steel.

But Steel Dynamics expects expanding domestic auto and construction industries to underpin demand the rest of the year.

"We believe the fundamentals are supportive of stronger economic growth in the U.S. during the second half of the year," Mark Millett, president and CEO, told investors last month. "However, the current unimpressive global growth expectation combined with severe worldwide steel production overcapacity will continue to be an industry headwind to steel pricing."

Write to Jeffrey Sparshott at jeffrey.sparshott@wsj.com