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updated 8/4/2010 11:56:58 AM ET 2010-08-04T15:56:58

Growth in the U.S. service sector picked up in July, according to a trade group's survey, in a good sign for the overall economy and the job market.

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The Institute for Supply Management said Wednesday its service-sector index rose to 54.3 last month, up from 53.8 in June. Economists had expected a pullback to 53 for July.

Levels above 50 signal growth. July was the seventh straight month of expansion.

The index shows service companies have been expanding every month this year, but at a less robust pace than the manufacturing sector. They are more dependent on consumer spending, which has grown only modestly because unemployment remains near 10 percent.

The slow recovery in the service sector this year had put a damper on overall hiring, since it accounts for about 80 percent of U.S. employment. Service jobs include those in hospitals, shops, restaurants, airlines, banks and consulting firms.

July's report suggested improvement. The index showed businesses reported that new orders, an indicator of future business, grew faster last month. A measure of hiring expectations also expanded in July for only the second time since December 2007, when the recession began. It had ticked slightly over 50 in May before shrinking to 49.7 in June. The July reading was 50.9.

At that level, the hiring index typically corresponds to monthly increases of nearly 100,000 private-sector jobs, said Capital Economics analyst Paul Ashworth.

The companies responding to ISM's survey showed "cautious optimism about business conditions," said Anthony Nieves, who oversees the ISM's service sector survey.

Of the 18 industries ISM surveyed, 13 reported growth in July, led by real estate and the arts and entertainment sectors. Construction and utilities were the biggest of four industries saying they shrank last month. Companies providing professional and scientific services said they saw no net change in growth.

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