Economic activity in the U.S. manufacturing sector contracted in August for the fifth month in a row, the Institute for Supply Management (ISM) said Tuesday.

The U.S. Manufacturing Purchasing Managers' Index (PMI) stood at 47.2 percent in August, up 0.4 percentage points from the 46.8 percent recorded in July. Any reading below 50 percent indicates the manufacturing sector is generally contracting.

"While still in contraction territory, U.S. manufacturing activity contracted slower compared to last month. Demand continues to be weak, output declined, and inputs stayed accommodative," Timothy Fiore, chair of the ISM's manufacturing business survey committee, said in a statement.

Demand slowing was reflected by the New Orders Index dropping further into contraction, New Export Orders Index contracting slightly faster, Backlog of Orders Index remaining in strong contraction territory, and Customers' Inventories Index at the "just right" level, said Fiore.

The New Orders Index registered 44.6 percent, 2.8 percentage points lower than in July. The New Export Orders Index reading of 48.6 percent was 0.4 percentage points lower than in July. The Backlog of Orders Index registered 43.6 percent, up 1.9 percentage points compared to July.

"Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and election uncertainty," Fiore noted.

U.S. Federal Reserve Chair Jerome Powell recently said that the "time has come" for monetary policy to adjust, sending a straightforward message to markets that the central bank will likely cut interest rates in its Sept. 17-18 meeting.

The Chicago Mercantile Exchange Group's FedWatch Tool, which acts as a barometer for the market's expectation of the Fed funds target rate, showed that the probability of the Fed cutting rates by 25 basis points at the September meeting is 62 percent as of Tuesday. The probability of the Fed cutting rates by 50 basis points is 38 percent.

"High interest rates are curtailing consumer spending on large discretionary spending for furniture, cabinetry, flooring and decorative trim, which has affected our industry sales potential," according to a business executive from the Wood Products industry.

At the same time, the executive said, pent-up demand seems to be growing for housing and remodeling, and interest rate cuts "may not happen soon enough to have an impact this year."

An executive from the Chemical Products industry, meanwhile, noted that there is a "noticeable slowdown" in business activity. "Staffing and production rationalization has been triggered. Previous optimism about future growth has been dashed," the executive said.