The Purchasing Managers' Index (PMI) released by HSBC and Markit Economics climbed to 49.4 in August from 48.5 the previous month, signaling a "near stabilization" of Vietnam's manufacturing sector.
The index, while remaining below 50 the point indicating deterioration is at its highest level since April.
Employment rose for the first time in five months, registering the fastest growth in the history of the PMI surveys.
The job creation is a good sign for local manufacturers, although both production and new orders went down for the fourth straight month in August.
New export orders also declined for the third consecutive month.
HSBC said local manufacturers faced pressure to make profits due to competitive market conditions and clients' requests for lower prices, while input costs accelerated last month.
Consumer prices rose 0.83 percent in August from the previous month, the fastest pace in six months.
Trinh Nguyen, the bank's senior economist for the Asia region, said the pace of contraction had seen a significant slowdown, but forecast that sluggish domestic conditions would continue to negatively affect the country's manufacturing sector.
Nguyen expects global demand to pick up the remaining months of the year thanks to the economic recovery going on in China, Japan, the Eurozone, and the US. She said this development will help Vietnamese manufacturers.
However, the road to recovery in Vietnam remains "bumpy", she said.
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