The U.S. service sector accelerated its hiring in August, but its growth rate slowed markedly compared with July, according to a report released Friday.

The Institute for Supply Management (search) said its August non-manufacturing index was at 58.2, after 64.8 in July and 59.9 in June.

The gauge is designed to capture the activity of service-related businesses, which account for the bulk of U.S. economic output. Index readings above 50 point to growth in the sector.

The median finding of economists surveyed by Dow Jones Newswires had expected to see a reading of 62.8 for August.

"Many of members' comments regarding business in August indicate continued positive business conditions but with concern for slowing growth rates and continued concern about inflationary pressures," the private research group said in its report.

It noted that some respondents noted stabilizing growth levels, while other saw slowing conditions, and still others fretted about higher energy prices.

The ISM reported that in August, its employment index improved modestly to 52.5, from 50.0 a month ago. The new orders index stood at 58.6, compared with July's 66.4. Higher prices remained a factor for the service sector, with that index standing at 70.0, from 73.1 in July.

"A number of respondents said the soft patch is still with us in August; there's growth but it's not as fast as it was," Ralph Kauffman, the ISM survey director, said in a telephone conference.

The research group's August manufacturing report released earlier in the week showed a manufacturing sector that is also continuing to grow, but also at a slower pace.

More importantly, the government reported Friday that hiring in August improved. Nonfarm payrolls added 144,000 jobs, nearly matching expectations, amid a drop in the unemployment rate (search) to 5.4 percent from 5.5 percent.