The ISM non-manufacturing index fell to 54.8 in October from 57.1 a month earlier, according to data from the Institute for Supply Management on Thursday.
Economists expected to hit 56 in October, according to Thomson Reuters consensus estimates. This represents continued growth in the non-manufacturing sector but at a slower rate, the report said.
A reading above 50 indicates expansion in the service sector and a reading below 50 indicates contraction.
Business activity also decreased in October to 57.7 percent. That's nearly 3 percentage points lower than the prior month but still reflects growth for the 87th consecutive month at a slower rate. The employment index decreased 4.1 percentage points to 53.1 percent in October.
A separate report showed U.S. factory orders rose 0.3 percent in September for a third straight month.
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