While activity in the service sector expanded for the eighth consecutive month in August, a report released by the Institute for Supply Management on Friday showed that the pace of growth in the sector slowed by much more than economists had been anticipating.

The report showed that the ISM's non-manufacturing index fell to 51.5 in August from 54.3 in July, although a reading above 50 indicates continued growth in the service sector. Economists had expected the index to show a more modest decrease to a reading of 53.0.

With the bigger than expected decrease, the non-manufacturing index fell to its lowest level since coming in at 50.5 in January.

"According to the NMI, nine non-manufacturing industries reported growth in August," said Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee. "Respondents' comments continue to be mixed about business conditions and the state of the overall economy."

A notable slowdown in the pace of new orders growth contributed to the slower pace of growth in the sector as a whole, with the new orders index falling to 52.4 in August from 56.7 in July. The business activity index also dipped to 54.4 from 57.4 in the previous month.

The report also showed a downturn in employment in the service sector, as the employment index fell to 48.2 in August from 50.9 in July.

On the other hand, the prices index jumped to 60.3 in August from 52.7 in July, indicating a significant acceleration in the pace of price growth.

The ISM released a separate report on Wednesday showing that manufacturing activity in the month of August unexpectedly expanded at a faster pace.

The index of activity in the manufacturing sector rose to 56.3 in August from 55.5 in July. The increase came as a surprise to economists, who had expected the index to fall to a reading of 52.9.

Paul Ashworth, Senior U.S. Economist at Capital Economics, said, "Taking the manufacturing and non-manufacturing reports together, they support our view that economic growth will stabilize at a 2% annualized pace in the second half of the year."

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