NEW YORK (CNN/Money) - The nation's service sector showed slower growth in May, according to a purchasing managers' survey released Thursday, in a report weaker than Wall Street expectations.

The Institute for Supply Managers' non-manufacturing index came in at 65.2 for May down from a 68.4 reading in April. Economists surveyed by Briefing.com forecast the index would slip to 66. Any reading above 50 shows growth in the sector.

The survey looks at a wide range of non-manufacturing activity, including retail, real estate, transportation and business services.

The survey's employment index jumped to 56.3 from 54.5 in April. It was the eighth straight month of growth in the employment reading. Those surveyed said the improved economy, turnover and increased business is spurring the pickup in hiring.

Those surveyed also said they are paying more for purchased materials and services -- the price index jumped to 74.4 from 68.6 in April. Of those surveyed, 55 percent reported paying higher prices and only 3 percent reported paying lower prices.

Readings on employment and inflation are being closely watched by investors concerned about when the Federal Reserve will raise interest rates. A stronger employment outlook and a return of inflation could increase the pressure on the Fed to raise rates at its June 30 meeting, rather than waiting until its August meeting.

The Friday May employment report and the June 15 reading on consumer prices will be key factors in the Fed's decision-making process.

The survey's reading on new orders shows continued but slowing growth, falling to 61.3 from 65.6 in April. Those seeing increased orders fell to 37 percent from 42 percent in April, while those seeing fewer orders rose to 11 percent from 9 percent in the earlier period.