updated 11/3/2006 3:12:51 PM ET 2006-11-03T20:12:51

The nation's service economy grew in October at a quicker pace than in September, and faster than analysts had expected.

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The Institute for Supply Management said Friday its index of business activity for the service sector registered 57.1 in October. That's above September's reading of 52.9, which was a three-year low, and above August's reading of 57.

Analysts had been predicting a reading of 54.5.

The service sector, which includes banking, construction, retailing and travel, generates about two-thirds of the nation's economic activity.

A reading above 50 signals expansion, while a reading below 50 indicates contraction.

The October figure represented the 43rd consecutive month of growth in the service sector.

The report of expanding services growth came on the heels of a Labor Department report earlier Friday that the unemployment rate dropped to a five-year low of 4.4 percent in October as employers added 92,000 new jobs. The rate was down 0.2 percentage point from 4.6 percent in September, and marked the third consecutive monthly jobless rate decline.

The service sector report indicated inventories grew at a faster pace, with the inventories index rising to 53.0, up from 50.5 in September. The new export orders index also climbed, rising to 63.5 in October from 59.0 in September.

The industries contributing most to the uptick were utilities, information, and retail trade. The industries reporting the biggest drops in activity were real estate; rental & leasing; and arts, entertainment and recreation.

The index of prices paid registered 51.9 in October, down sharply from 56.7 in September.

The new orders index registered 56.5, down slightly from September's reading of 57.2, while the backlog index was at 51.5 in October, down from a reading of 53. The employment index was at 51.0, down from 53.6 a month earlier.

Stocks climbed Wednesday morning on Wall Street after the ISM report and employment data were released. The Dow Jones industrials were up 0.25 percent to 12,048.15, while the Nasdaq composite index was up 0.18 percent to 2,338.14. The broader Standard & Poor's 500 index was up 0.21 percent to 1,370.49.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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