updated 9/6/2006 10:46:05 AM ET 2006-09-06T14:46:05

Growth in the service sector, which makes up two-thirds of the nation’s economy, accelerated in August at a faster rate than economists expected, a monthly survey said Wednesday.

Major Market Indices

The Institute for Supply Management, a research group based in Tempe, Ariz., reported that its index of activity in the service sector — which includes banking, construction, retail and travel — stood at 57.0 in August, versus 54.8 a month earlier. The results for one of the earliest readings on economic activity in the prior month beat analysts’ forecasts of 55.0.

A reading of 50 or more indicates expansion, while below 50 indicates contraction.

August marked the 41st consecutive month of expansion for the U.S. service sector.

The report’s prices index fell 2.4 percentage points to an August reading of 72.4 from 74.8 in July. This was largely due to falling oil prices, which have dropped about 13 percent since their all-time high reached July 14.

The new orders index fell to 52.1 in August from 55.6 in July; the employment index dropped to 51.4 from 54.5; and the new export orders index slipped to 53.0 from 56.0.

The accelerated business activity comes after Fed policymakers in August took a break after two years of 17 consecutive interest rate increases, suggesting that they may have done enough to curb inflation. The Fed meets again on Sept. 20, and will have to decide whether to pause again or resume raising rates — a balancing act between fostering economic growth and keeping inflation at bay.

The 11 industries that reported growth in August were: management of companies & support services; transportation & warehousing; other services; educational services; utilities; construction; retail trade; accommodation & food services; professional, scientific & technical services; information; and finance & insurance.

The three industries that reported activity the same as last month were: agriculture, forestry, fishing & hunting; mining; and arts, entertainment & recreation.

The four industries reporting lower activity were: real estate, rental & leasing; health care & social assistance; wholesale trade; and public administration.

The ISM survey arrived on the back of a Labor Department report that the productivity of American workers slowed in the spring while wage pressures increased. The Labor Department said that productivity, the amount of output per hour of work, increased at an annual rate of 1.6 percent in the April-June quarter — slightly above the 1.1 percent increase estimated a month ago but below a 4.3 percent growth rate in the January-March period.

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