The service sector saw growth in October but at a slower pace than the previous month.(Photo: Oli Scarff, Getty Images)

WASHINGTON – U.S. services companies grew at a slower pace in October, although the economy appears poised to continue expanding.

The Institute for Supply Management said Thursday that its services index fell to 54.8 last month, down from 57.1 in September. Still, any reading above 50 signals growth.

New orders, production, and employment were positive in October, although each of these categories decelerated. The firms surveyed for the index largely reported growth, although one health care company noted some "uncertainty" due to the impact of rising Obamacare costs and another food company noted some trouble from rising avocado prices.

Services firms have now grown for 81 straight months. These companies account for the bulk of employers and economic activity, shielding many workers from the slowdown in manufacturing earlier this year.

The ISM is a trade group of purchasing managers. Its services survey covers businesses that employ the vast majority of workers, including retail, health care and financial companies.

In a separate report, orders to U.S. factories increased a modest amount in September even though a key category that tracks business investment plans fell by the largest amount since February.

Factory orders edged up a slight 0.3% in September following a 0.4% advance in August, the Commerce Department reported Thursday. Orders in a category that serves as a proxy for business investment fell 1.3%, reversing a 1.2% increase in August. It was the biggest decline in the investment category since a 2.1% plunge in February.

The hope is that manufacturers, who have been battered all year by a strong dollar and global weakness, will begin to see an improvement. Analysts think that the September drop in the investment category, non-defense capital goods orders excluding aircraft, will be temporary.

Orders for durable goods, items expected to last at least three years, fell by 0.3% in September, slightly worse than the 0.1% decline estimated last week in an advance report. Demand for non-durable goods, items such as chemicals and paper, increased 0.9% after a 0.5% rise in August.

The weakness in durable goods reflected in part a big drop in demand for military aircraft, which fell 47.6%. Demand for commercial aircraft rose 12.1%.

Orders for machinery were up 1.1% in September while demand for computers fell 4.7%.

In addition to the strong dollar, which makes U.S. exports more expensive on overseas markets, U.S. manufacturers have had to contend this year with sharp cutbacks in investment spending by energy companies in the face of big declines in global oil prices.

But there are signs that the energy cutbacks are coming to an end. Orders for mining and oil field equipment rose 12.6% in September after gains of 5.7% in August and 48.4% in July. Even with the recent gains, spending in this category is down 54.9% this year compared to the same period in 2015.

On Tuesday, the Institute for Supply Management reported that its closely watched manufacturing index rose to 51.9 in October, up from 51.5 in September. Anything above 50 signals growth in manufacturing. Analysts saw that gain as evidence that manufacturing is starting to rebound after a weak showing in the first half of the year.

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