updated 4/3/2008 11:23:19 AM ET 2008-04-03T15:23:19

The Institute for Supply Management said Thursday that the nation’s service sector — which includes retailers, the hotel business, insurance and various social services — contracted in March, but not as much as the month before. Still, worries deepened about soaring prices for raw materials.

Major Market Indices

The institute, a trade group of purchasing executives, said its non-manufacturing index registered 49.6 last month, compared with 49.3 in February.

A reading below 50 indicates contraction, while a reading above 50 indicates growth.

It’s the third consecutive month of contraction, but the March reading was a bit stronger than the 49.0 expected by analysts surveyed by Thomson/IFR.

Earlier this week, the institute said its index of manufacturing contracted for a second consecutive month in March, but was a bit improved from the month before.

In Washington, meanwhile, the Labor Department said that the number of new people signing up for unemployment benefits last week shot up to the highest level in more than two years. The department said new applications filed for unemployment insurance jumped a seasonally adjusted 38,000 to 407,000 for the week ending March 29.

The reports provided further evidence that the economy may be sliding into recession.

Purchasing managers surveyed by the institute, which is based in Tempe, Ariz., said they were especially worried about the rising prices of raw materials.

Anthony Nieves, chairman of the institute’s non-manufacturing business survey committee, said members’ comments “reflect concern about rising fuel and energy costs and the impact they are having on commodity prices.”

The price index soared to 70.8 in March from 67.9 the month before. New orders and export orders rose, but employment contracted with a March reading of 46.9, the same as in February.

Eleven industries reported growth last month: real estate, rental and leasing; mining; agriculture and forestry; construction; information; miscellaneous services; utilities; retail trade; accommodation and food services; health care and social assistance; and public administration.

Six were contracting: transportation and warehousing; wholesale trade; educational services; finance and insurance; management of companies; and professional, scientific and technical services.

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