updated 1/4/2008 11:04:42 AM ET 2008-01-04T16:04:42

The nation’s service sector grew in December at a pace slightly slower than the month before, providing more evidence that the U.S. economy is struggling because of higher oil prices and a tight credit market.

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The Institute for Supply Management, a business group based in Tempe, Ariz., said Friday that its index measuring performance in non-manufacturing industries slipped to 53.9 in December from 54.1 in November. It was the lowest reading since 52.4 in March.

A reading above 50 indicates expansion, while one below 50 shows contraction.

Analysts surveyed by Thomson/IFR had expected a slightly lower reading for December.

Anthony Nieves, chairman of the institute’s business survey committee, said in a statement accompanying the report that respondents “remain concerned about the economy.”

Earlier this week, a companion index showed that the U.S. manufacturing economy unexpectedly contracted in December, ending a 10-month growth streak and suggesting the economy may be weakening faster than some analysts expected.

Similar fears were raised Friday when the Labor Department reported that payrolls grew by an anemic amount in December, driving the nation’s unemployment rate up to a two-year high of 5 percent. The unemployment rate had been 4.7 percent in November.

Stocks fell sharply on Wall Street on the news, with the Dow Jones industrial average down more than 180 points in morning trading.

The latest ISM report on the service sector indicated that new orders and employment rebounded slightly in December. The new orders index registered 53.5 last month, up from 51.1 the month before. The employment index, meanwhile, was at 52.1 in December compared with 50.8 the month before.

Ian Shepherdson, chief U.S. economist with High Frequency Economics Ltd. in Valhalla, N.Y., said in a research note that the rise in the ISM employment reading could signal that the Labor Department’s payroll numbers will firm in coming months.

The index reading “is consistent, if maintained, with modest gains in core private sector payrolls, which fell in the December data released this morning” by the Labor Department, he said.

The inventories reading was unchanged at 50.5, while the price index registered 72.7 in December, down from 76.5 the month before.

The report said that five industries reported stronger business activity in December: retail trade; information; professional, scientific and technical services; construction; and health care and social assistance.

Eight reported decreased activity: management of companies and support services; miscellaneous services; accommodation and food services; real estate; finance and insurance; wholesale trade; educational services; and arts and entertainment.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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