SERVICE industries in the US grew in March at the slowest pace in seven months as new orders and employment cooled in the biggest part of the economy.

The Institute for Supply Management's non-manufacturing index fell to 54.4 from a one-year high of 56 in February, a report from the Arizona-based group said yesterday. The median forecast in a Bloomberg News survey saw a drop to 55.5. A reading above 50 indicates growth and the March measure was in line with the gauge's average over the past year.

The figures follow a decrease in the group's factory index and signal the economy may find it hard to accelerate this quarter in the face of across-the-board cuts in the federal budget. At the same time, job growth and low borrowing costs may underpin sales at auto dealers and retailers such as Macy's Inc, while a resurgent housing market benefits realtors, builders and lenders.

"Non-manufacturing firms still seem cautiously optimistic," said Ryan Wang, an economist at HSBC Securities USA Inc in New York, who projected a March reading of 54.5. "Employment signals are mixed."

Estimates of the 73 economists in the Bloomberg News survey ranged from 53.7 to 56.5 for the index, which accounts for almost 90 percent of the economy and includes industries from utilities and retail to health care, housing and finance. Before yesterday, the gauge averaged 53.6 since the recession ended in June 2009.

The ISM non-manufacturing survey's employment gauge fell to 53.3 in March from 57.2, the biggest drop in four years. The measure of new orders declined to 54.6 from 58.2. A gauge of business activity eased to 56.5 from 56.9. The index of prices paid shed to 55.9 from 61.7.

"Where we are is still a healthy level' for the index, Anthony Nieves, chairman of ISM's non-manufacturing survey committee, said yesterday. "I'd rather see slow, incremental growth that is sustainable" than outsized gains that dissipate, he said.

The drop in new orders shows a "slowing in the pipeline" which caused the pace of employment to ease, Nieves said.

A measure of order backlogs held at 54.5, the highest since May 2011.

Fifteen non-manufacturing industries, including real estate, construction and finance, reported growth in March, while three signaled contraction.

The ISM's factory survey on Monday signaled that manufacturing, which accounts for about 12 percent of the economy, took a breather in March as businesses assessed the impact of the automatic federal government spending cuts which were triggered as lawmakers failed to reach a compromise on ways to trim the nation's debt. The manufacturing index fell to 51.3 from a nearly two-year high of 54.2 in February.

For consumers, progress in the labor market is softening the blow from a two percentage-point rise in the payroll tax that went into effect at the start of 2013. Consumer spending, which makes up about 70 percent of the economy, climbed in February by the most in five months.

Merchants projecting the pace of sales will be sustained include Macy's, the second-largest US department-store chain.