Service sector rebounds slightly

Commodity shock

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NEW YORK (CNNMoney.com) -- A key index of business activity in the nation's services industry rose unexpectedly in March, but the indicator remained below the level that shows growth in the sector.

The Institute of Supply Management's March report on businesses outside of the manufacturing sector rose to an index reading of 49.6 from 49.3 in February, the ISM announced Thursday. Economists were expecting a reading of 48.5, according to a consensus compiled by Briefing.com.

A reading above 50 indicates growth in the sector, and a reading below 50 represents an industry-wide decline.

Thursday's report marks the third consecutive month that the index has been below the tipping point.

The ISM's overall measure averages data from four key areas of the service sector: business activity, new orders, employment and supplier deliveries.

The business activity component rose 1.4 points to 52.2 in March, the second consecutive month of growth. The new orders index increased modestly while employment and deliverers both fell.

Meanwhile, the part of the index that gauges prices paid by businesses in the service sector for materials and services rose nearly 3 points to 70.8 in March.

Rapidly rising costs are now a growing concern for the service sector, according to Anthony Nieves, chair of the ISM's Non-Manufacturing Business Survey Committee.

"Members' comments in March are mixed and reflect concern about rising fuel and energy costs and the impact they are having on commodity prices," Nieves said in a statement.

In December, the overall index registered a healthy 53.2. But it fell sharply in January to 44.6, the largest month-to-month drop in the index's 10-year plus history.

The service sector, which includes everything from retailers and health care providers to airlines and utilities, represents the majority of the nation's economic activity.

Earlier this week, the ISM reported that business activity in the manufacturing sector recovered slightly, though the measure remained below the level that shows growth.