The Institute for Supply Management said its non-manufacturing index came in at 37.3 versus 44.4 in October.
The level of 50 separates expansion from contraction.
Economists expected a reading of 42.0, according to the median of 71 forecasts in a Reuters poll which ranged from 37.0 to 46.5.
The service sector represents about 80 percent of U.S. economic activity, including businesses such as banks, airlines, hotels and restaurants.
Meanwhile, worker productivity slowed in the summer to the smallest advance since late last year while wage pressures increased. Neither development is expected to raise inflation alarms at the Federal Reserve.
The Labor Department says productivity, the key ingredient for rising living standards, rose at an annual rate of 1.3 percent in the July-September quarter. That's down from the 3.6 percent growth rate in the second quarter.
Wage pressures, as measured by unit labor costs, rose at an annual rate of 2.8 percent, after having declined at a 2.6 percent rate in the second quarter.
The Fed closely monitors developments in productivity and wages to see if inflation is getting out of hand. But the central bank is likely to view the recent developments as temporary and not long-run trends.