(04-04) 07:18 PDT WASHINGTON (AP) -- U.S. service companies expanded at a healthy pace last month and stepped up hiring, though growth slowed a bit from the previous month.
The Institute for Supply Management, a private trade group, said Wednesday that its index of non-manufacturing activity dropped to 56 in March, down from February's 57.3. Any reading above 50 indicates expansion.
The trade group of purchasing managers surveys roughly 90 percent of U.S. companies in all sectors outside of manufacturing. That includes retail, construction, financial services, health care, and hotels.
A measure of employment rose as more companies said they plan to add workers.
Separately, payroll processor ADP said the economy added 209,000 private-sector jobs in March. The ADP survey does not include government jobs.
Both reports are encouraging signs ahead of the government's report on March job growth, which will be released Friday. Economists are predicting that employers added 210,000 jobs, which would be the fourth straight month of strong hiring.
More jobs have helped service companies grow. As hiring picks up, Americans are more willing to spend. Consumer spending jumped in February by the most in seven months, the government said last week.
Department stores, electronics chains and other merchants are seeing more business. Retail sales increased in February by the most in four months. Department store sales rose in February by the most since November 2010.
Big job gains at service firms are necessary to reduce the unemployment rate. The service sector includes low-paying positions in retail and restaurants. But it also has higher-paying jobs in professions such as information technology, accounting and financial services.
The job gains have come as growth has picked up. The economy expanded at an annual rate of 3 percent in the final three months of last year.
Still, the hiring gains have not resulted in bigger paychecks for most people. Income grew just 0.2 percent last month, matching January's weak increase. And when taking inflation into account, income after taxes fell for a second straight month.