NEW YORK (CNN/Money) -
The service sector of the U.S. economy grew for the 13th straight month in April, the nation's purchasing managers reported Wednesday, expanding quite a bit faster than economists had expected.
The Institute for Supply Management said its index of non-manufacturing activity jumped to 68.4 in April from 65.8 in March.
Economists expected the reading to come in at 65, according to Briefing.com, and any reading above 50 indicates growth in the sector, which makes up about 78 percent of gross domestic product. The service sector comprises industries such as health care, financial services and transportation.
On Wall Street, stocks pared early losses and bond prices remained higher after the report.
In its report, the purchasing managers group said prices paid rose in April for the 25th consecutive month, to 68.6 from March's 65.7, in the latest sign of a possible pickup in inflation.
However, Joshua Feinman, chief economist with Deutshce Bank Asset Management, noted the prices paid index is not seasonally adjusted and may reflect higher prices for some services as seasons turn.
"But overall, we see the prices accelerating in the past couple months," he added.
Several recent reports have indicated inflation is creeping back into the recovering economy, which led the Federal Reserve to alter its statement Tuesday on its accommodative monetary policy.
Backlogs keep growing
In addition, the ISM report showed order backlogs rose a full point to 53.5 percent in April, marking a full year that order backlogs have grown.
Although backlogs expanded, it was at a slower pace than the other readings in the report, indicating that an inventory build may still be coming as the economy recovers, said Deutsche Bank's Feinman.
"Production is keeping pace with shipments and the build in inventories is slow to come," he said. "One explanation of that could be that they are coming later in the year, and the other could be that companies are having more success with just-in-time production systems."
New orders also expanded, coming in at 65.6 percent, up from 62.8 percent, the ISM reported.
The report also included comments from purchasing managers indicating hiring freezes have been lifted and activity is exceeding some budget projections. However, one manager expressed concern that the increase in demand may be short-lived.