Service sector expanded at a faster rate last month

The service sector expanded at a faster rate in August and was at its highest level since May, providing a bright spot in the slowing economy. 

The Institute for Supply Management's monthly index of the service industry, released Thursday, showed the sector posted 53.7 percent in August, up from the 52.6 percent registered in July. 

Readings above 50 reflect expansion. The index's February reading of 57.3 was the highest this year, while June's report was the lowest at 52.1 percent. 

Respondents said there is still "uncertainty about business conditions and the economy.”

Employment in the service industry also grew at a quicker clip — up 4.5 percentage points to 53.8 percent — after contracting in July. 

A separate report from ADP Employer Services on Thursday showed that the private sector added 201,000 jobs last month, with the service industry responsible for the bulk of those positions, 185,000, up from 156,000 in July.

The Labor Department will release its August report on job growth with estimates around 135,000 for the private and public sectors. 

Steady growth in the service industry could help offset the slowdown in factory activity. 

ISM's manufacturing index released on Tuesday showed the sector contracting for the third straight month, hampered by the continuing financial crisis in Europe and economic slowdown in Asia, including China. 

In addition, Thursday's ISM report showed that the measure of new orders decreased to 53.7 from 54.3, and business activity dropped to 55.6 from 57.2. 

Prices paid increased to 64.3 from 54.9, indicating substantially higher month-over-month prices when compared to July.