While a report released by the Institute for Supply Management on Tuesday showed the seventh month of contraction in service sector activity in the month of April, the pace of contraction slowed even more than economists had expected.

The ISM said its index of activity in the service sector rose to 43.7 in April from 40.8 in March, with a reading below 50 indicating a contraction in the sector. Economists had been expecting a more modest increase to a reading of 42.2.

Commenting on the data, Joel Naroff, president of Naroff Economic Advisors and chief economist at TD Bank, said, The services sector is beginning to show signs that the worst may be behind it.

A notable slowdown in the pace of contraction in new orders contributed to the improvement in the sector, with the new orders index jumping to 47.0 in April from 38.8 in March.

The report also showed a much slower pace of contraction in employment, as the employment index rose to 37.0 in April from 32.3 in the previous month.

Inventories also contracted at a slower pace compared to the previous month, with the inventories index rising to 43.0 in April from 40.0 in March. Additionally, the prices index edged up to 40.0 from 39.1.

Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee said, Respondents' comments are mixed and they vary by company and industry about economic conditions.

The ISM released a similar report last Friday showing a bigger than expected slowdown in the pace of contraction in manufacturing activity.

The report showed that the index of activity in the manufacturing sector rose to 40.1 in April from 36.3 in March. Economists had been expecting a more modest increase to a reading of 38.4.

Commenting on the increase, Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee noted, While this is a big step forward, there is still a large gap that must be closed before manufacturing begins to grow once again.

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