updated 1/5/2005 11:49:11 AM ET 2005-01-05T16:49:11

The service sector of the U.S. economy saw activity grow in December, amid continued advances for employment and increasing prices, a report from a private research group said Wednesday.

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The Institute for Supply Management reported that its non-manufacturing index for the final month of 2004 moved up to 63.1, from 61.3 in November and 59.8 in October. Economists had expected to see a December reading of 61.0.

The non-manufacturing index is comprised mostly of services, which represent by a wide margin the largest part of the U.S. economy.

Survey readings above 50 point to growth.

With the best gain since July, the report noted that “many of members’ comments regarding business in December indicate continued positive business conditions but with continued concern for inflationary pressures.”

The components of the ISM report were positive, but in some cases, represented slower growth compared with November.

The group said that its service sector employment index came in at 54.9 in December, from 55.0 in November, marking its fifth straight month of growth with the index above 50.

The government is set to report Friday about the state of the overall hiring during December, in one of the month’s most hotly anticipated reports.

The ISM said its prices index for last month stood at 71.4, after 71.0 in November and 74.1 in October. Agriculture, wholesale trade and construction saw most of the price gains.

The prices index in the ISM service sector report, much like the one in the group’s manufacturing report, has indicated growth for a long time. While the Federal Reserve has publicly taken an optimistic view that price pressures remain for the most part contained, the meeting minutes of its December gathering saw the policy-makers more concerned than was once understood.

Meanwhile, the ISM non-manufacturing new orders index hit 60.3, versus 59.9 in November. The group’s manufacturing report for December saw surging new orders for factories, the strength of which likely signals a solid start to 2005 for the sector.

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