NEW YORK (AP) - U.S. manufacturing activity slipped in August and construction spending dropped to the lowest level in seven years in July as consumer spending and housing show no signs of reviving.

The Institute for Supply Management said Tuesday its reading for the nation's manufacturers fell to 49.9 from 50 in July. The August number met economists' prediction of a reading of 49.9, according to the consensus estimate of Wall Street economists surveyed by Thomson/IFR. A reading below 50 signals contraction.

The reading has hovered near the 50 "boom-bust" line all year.

The group's inflation index hit a six-month low, however. For the first time in months, there were many items on the list of commodity costs coming down, as prices for copper, corn, fuel oil, natural gas and soybean oil fell.

Although inflation remained higher in August, at a reading of 77, it backed off further from its June high of 91.5, the highest since 1979.

New orders, the backlog of orders, inventories and employment contracted in the sector as high gas prices and worries about the job market kept consumers cautious about spending.

Exports expanded, however, helping to prop up the nation's paper makers, computer producers, chemical and steel companies, among others.

"This continues the 2008 trend toward negligible growth or contraction each month," Norbert J. Ore, chairman of ISM's manufacturing business survey committee, said in a statement accompanying the report.

Separately, the Commerce Department said construction spending declined 0.6 percent in July, double the 0.3 percent decrease analysts had been expecting.

Housing activity fell for a 16th consecutive month, declining 2.3 percent to a seasonally adjusted annual rate of $357.8 billion. That was the lowest level since March 2001, the start of the last recession.

Nonresidential activity, which had been offsetting some of the weakness in the residential sector, also fell in July, dropping 0.7 percent to an annual rate of $416.8 billion. It was the first setback in that category since December.

Stocks, which were higher before the reports, pared their gains. The Dow Jones industrial average was up 157.55 at 11,701.10. The Standard & Poor's 500 was up 10.16 at 1,292.99 and the Nasdaq Composite index was up 20.69 at 2,388.21.