updated 9/6/2005 12:42:09 PM ET 2005-09-06T16:42:09

The service sector of the nation’s economy grew in August, but many executives are concerned about rising energy costs, according to a survey of business managers.

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The Institute for Supply Management, which surveyed about 370 purchasing executives in 62 industries throughout the U.S., said its non-manufacturing index rose to 65 percent in August from July’s 60.5 percent.

A reading above 50 indicates the sector is expanding; below 50 indicates activity is shrinking.

The index’s August reading is a high not seen since April 2004, when it hit an all-time high of 66.9 percent. The index was started in July 1997.

“This is quite a strong report. It certainly indicates we had strong momentum going in” ahead of Hurricane Katrina, said Ralph Kauffman, chair of the ISM committee that issues the survey.

The August survey of purchasing managers was taken prior to Hurricane Katrina so it did not take into consideration disruptions to the U.S. economy that resulted from Katrina.

While respondents in the construction industry expressed optimism about the next six months, executives in other industries worried about fuel prices. a

Wholesale-trade business executives expressed concern about railroad freight and fuel surcharges, while entertainment-business participants surveyed signaled concern about fuel prices affecting winter volume.

The ISM said its new-orders index rose to 65.8 percent from 61.9 percent and its employment index rose to 59.6 percent from 56.2 percent.

Businesses reporting growth in August included mining, transportation, utilities, real estate, construction and insurance.

Activity was little changed in August from July for businesses like agriculture, entertainment, finance and banking.

The ISM’s prices index fell to 67.1 from 70.3, and the backlog of orders fell to a reading of 52 percent from 53.5 percent.

“This is a number that indicates that the economy was on very solid footing,” ahead of the hurricane, said Jerry Zukowski, deputy chief economist at Nomura Securities International Inc. “The orders numbers suggest the economy was going to have strength going forward.”

Zukowski said higher oil prices likely will be felt among consumers and this may have an impact on their spending habits in coming months. “Clearly, gas prices will curtail spending, especially at lower income levels. The question is: Will it affect those whose incomes are higher and can absorb higher costs?”

Last week, the ISM reported that the U.S. manufacturing sector extended its growth streak in August, but its pace was not as robust as July’s, in part because of rising energy prices. ISM’s monthly manufacturing index was at 53.6 percent in August, down from July’s 56.6 percent.

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