updated 2/4/2004 12:23:56 PM ET 2004-02-04T17:23:56

The non-manufacturing sector grew for the 10th consecutive month in January, expanding at the fastest pace since the Institute for Supply Management first began tracking this part of the U.S. economy in July 1997, the private research group reported Wednesday.

The ISM business activity index, which measures activity in services, construction and agriculture, shot up to 65.7 in January from a revised 58.0 in December, surpassing economists' expectations for a more moderate increase to 60.0.

Index readings above 50 indicate expansion of activity and prices in the nonmanufacturing sector, while readings under 50 denote contraction. The sectors covered comprise over two-thirds of total U.S. economic output.

In a statement, the ISM said that "increased business activity in January was reported by 40 percent of members, compared with 36 percent in December," helping to boost the index to its best level ever.

The sector's employment index dipped to 53.4 in January from a revised 54.0 in the previous month, but the reading still indicates that companies are hiring.

The prices index, meanwhile, slipped to 59.7 from a revised 60.3, and new orders index increased to 64.9 from 59.5, posting its second-highest reading in the history of the survey.

Ralph Kauffman, chairman of the committee conducting the survey, said that the new orders index tends to lead the business activity index.

"Since orders are not all filled in the month they are received, it probably does point to further improvement in February," Kauffman said.

The latest ISM data follow a survey the group released earlier this week that showed the manufacturing sector expanded for the eighth consecutive month in January. The manufacturing business activity index rose to 63.6, from a downwardly revised 63.4 in December.

(Dow Jones/AP)

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