The Institute for Supply Management said its index of non-manufacturing activity rose to 54.5 in May from 50.7 in April. Monthly activity in the services sector of the economy has contracted only once -- in March 2003 -- in the last 16 months.

Any reading above 50 indicates growth at businesses ranging from tourism to banking that make up roughly 80 percent of the U.S. economy. Economists had expected the index to rise to 52.