Activity in the U.S. service sector unexpectedly grew at a faster rate in the month of October, according to a report released by the Institute for Supply Management on Friday.

The ISM said its non-manufacturing index inched up to 60.1 in October from 59.8 in September, with a reading above 50 indicating growth in the service sector. Economists had expected the index to drop to 58.6.

With the increase, the NMI reached its highest level since the index's debut in 2008. The highest reading among pre-2008 composite index calculations was 61.3 percent in August of 2005.

"The non-manufacturing sector has reflected the third consecutive month of strong growth," Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee.

He added, "Respondent comments continue to indicate a positive outlook for business conditions, and the economy as we begin the fourth quarter."

The uptick by the headline index came as the business activity index rose to 62.2 in October from 61.3 in September.

The employment index also crept up 62.8 in October from 63.0 in September, indicating a modest acceleration in the pace of job growth in the service sector.

On the inflation front, the prices index dropped to 62.7 in October from 66.3 in September, suggesting a slowdown in the pace of price growth.

The ISM released a separate report on Wednesday showing a slowdown in the pace of growth in U.S. manufacturing activity in the month of October.

The purchasing managers index fell to 58.7 in October from 60.8 in September. Economists had expected the index to edge down to 59.5.

The bigger than expected pullback by the manufacturing index came after it jumped to its highest level in over thirteen years in the previous month.

"Overall, the continued strength of the business surveys illustrates that the pick-up in GDP growth over the past couple of quarters has been no fluke, and supports our view that the economy will continue growing at a healthy pace over the coming quarters as well," said Andrew Hunter, U.S. Economist at Capital Economics.

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