Business activity in the U.S. service sector grew in August after having failed to expand for two consecutive months, the Institute for Supply Management (ISM) reported Thursday.

The Tempe, Arizona-based research group said its index of business activity in the non-manufacturing sector registered 50.6, up 1.1 from the previous month.

A reading above 50 indicates expansion, while one below indicates contraction. The index fell in June to 48.2 and stood at 49.5 in July. Analysts were expecting a reading of 50.0 for last month.

For August, the new orders index climbed up to 49.7 from 47.9 percent in July while the index for production rose to 51.6 from 49.6.

The employment index, however, declined to 45.4 from 47.1. The index for new export orders was down to 44.5 from 47.5.

Inflation moderated in August. The prices index declined to 72.9 from 80.8 in the previous month.

Ten industries reporting growth last month included real estate, rental and leasing, mining, health care and social assistance, utilities and construction, while eight industries reporting contraction included transportation, finance and insurance, wholesale trade, retail trade and public administration.

The service sector -- everything from restaurants and hotels to banks and airlines -- represents about 80 percent of economic activity in the United States.