updated 5/3/2007 11:02:55 AM ET 2007-05-03T15:02:55

The U.S. service sector expanded at a faster rate in April after hitting a four-year low in March, a trade group said Thursday, with concerns about energy costs persisting.

Major Market Indices

The Tempe, Ariz.-based Institute for Supply Management, an organization of corporate purchasing executives, said its index of business activity in the non-manufacturing sector registered 56 in April, up from 52.4 in March. Readings above 50 indicate expansion.

The index was above Wall Street’s expectation of 54, according to Briefing.com, and April represents the 49th consecutive month of growth in the non-manufacturing industries.

April’s figure represents a rebound from February’s reading of 54.3 and March’s four-year low of 52.4. Nevertheless, the index is still below the 2006 average reading of 58.

“Members’ comments in April are mixed about business conditions,” Anthony Nieves, the chair of the ISM’s survey committee, said. “There is continued concern with fuel and energy costs.”

Indeed, a wide range of commodities increased in price, including airfare, aluminum, diesel fuel, gasoline, and hotel costs, the report said. The prices paid index, a potential inflation indicator, increased in April to 63.5, up from March’s 63.3. The index jumped almost ten points in March.

But there was some evidence Thursday that a slowing economy could help hold down inflation, as the Labor Department reported that growth in worker productivity — and wages — slowed in the first three months of 2007.

The ISM said its non-manufacturing new orders index came in at 55, above March’s reading of 53.8, while the employment index registered 51.9, an increase from 50.8 in March.

Order backlogs, meanwhile, grew at a slower pace than in March, registering 50, from March’s figure of 52.5.

The service industries covered by the ISM report represent about 80 percent of the nation’s economic activity.

Slowdowns in the automotive and housing sectors have spilled over into service sectors, such as engineering services, according to some smaller firms.

Helen Himes, owner of Detroit-based HH Engineering Ltd., said that the difficulties of Michigan’s auto industry have affected the housing sector and affected her 12-person engineering firm. Her company has done site design work for new loft-style housing in Detroit in recent years, but that type of work has dried up recently, she said.

“Some young engineer from Ford who wants to live downtown isn’t going to buy one now,” she said.

Bob Bates, owner of Denver-based Bates Engineering Inc., a 7-person engineering firm, said the housing slump has impacted some engineering companies that help develop lots for builders. Bates said he knows of some firms that have laid off workers as a result.

Bates said his firm, which focuses on water tanks and other storage systems, had one housing project put on hold by the developer, but the company still has almost two dozen projects in the works. Some of his business is with resorts in the Rocky Mountains that cater to wealthy clients, he said, who are less susceptible to economic ups and downs.

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