updated 6/4/2008 10:58:56 AM ET 2008-06-04T14:58:56

The service sector grew at a better-than-expected pace in May but slower than in April, suggesting that higher prices for food and fuel may be crimping business in retail, entertainment and agriculture.

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The Institute for Supply Management said Wednesday that its service sector index was 51.7 in May, following a stronger-than-expected reading of 52 for April. Wall Street economists surveyed by Thomson Financial/IFR had expected a reading of 50.3 in May.

A reading above 50 indicates the sector, which comprises roughly 80 percent of the total economy, is growing, while a reading below 50 indicates contraction.

Still, the sector’s expansion, albeit modest, could provide a glimmer of hope that the U.S. economic slowdown will be mild, analysts said.

“It’s somewhat of a mixed report,” said Bernard Baumohl, executive director, The Economic Outlook Group. “This tells us, that even if we’re in recession — something I’m not ruling out — it’s a very shallow one.”

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