By Anna Louie Sussman

WASHINGTON -- Growth in U.S. service-sector activity cooled slightly in October, but remained in expansionary territory, signaling a likely continuation of the year's overall modest growth in the final quarter.

The Institute for Supply Management said on Thursday its nonmanufacturing index fell to 54.8 in October from 57.1 in September, lower than economists' consensus of 56.0. A reading above 50 signals expansion while a reading below 50 indicates contraction. The index has run above the 50 threshold for 81 straight months.

The index has been choppy of late, with a reading of 51.4 in August, followed by September's to its highest level of the year. Stephen Stanley, chief economist with Amherst Pierpont Securities, said October's reading was "very much a Goldilocks story," noting several components of the index were very close to their year-to-date averages. The overall index matched its 12-month average.

A separate measure of service-sector activity from private data provider Markit showed its services business activity index rose to 54.8 in October from 52.3 in September.

Economists were divided on how the slowing service-sector growth would impact GDP in the final quarter of the year.

Andrew Hunter, U.S. Economist at Capital Economics, said today's service-sector survey as well as Tuesday's ISM manufacturing survey, which showed a very slight uptick, "suggest that GDP growth is nonetheless likely to slow again over the rest of the year."

The economy grew at a robust 2.9% pace in the third quarter, following a 1.4% rate in the second quarter, the Commerce Department said last month.

Jim O'Sullivan, Chief U.S. Economist at High FrequencyEconomics, Ltd., called the number "a bit weaker than expected, but still consistent with fairly solid growth."

Drops in the indexes for business activity, new orders and employment pulled the overall reading down in October. But all three components were still well above 50, signaling they are still growing.

"There has been a slight cooling-off in the non-manufacturing sector month-over-month, indicating that last month's increases weren't sustainable," said Anthony Nieves, who oversees the survey.

Some components of the index ticked higher. The price index rose by 2.6 points to 56.6 in October, which Mr. Nieves said largely reflected higher prices for petroleum-related products.

Thirteen industries reported growth, including transportation and warehousing, construction, management of companies, professional services and real estate. That's down from 14 industries reporting growth in September. Five industries reportedcontraction, including educational services and mining.

Survey respondents cited shortages of two key commodities: avocados and skilled labor. The latter could have important implications for wages going forward. Mr. Nieves cited rising pay for certain roles in the health-care sector, where demand is outpacing supply.

Americans' spending on services accounts for around two-thirds of overall personal consumption expenditures, and the service sector provides the bulk of U.S. jobs. U.S. job growth in September was largely concentrated in service industries such as professional and business services, health care, retail and restaurants and bars. The Labor Department will release October's jobs figures on Friday.

The group's nonmanufacturing index covers a wide swath of business activity including retail trade, construction and services including health care. It has signaled continuous expansion since early 2010.

Write to AnnaLouie Sussman at anna.sussman@wsj.com

(END) Dow Jones Newswires

November 03, 2016 11:55 ET (15:55 GMT)

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