WASHINGTON -- The U.S. service sector expanded in March for the 16th straight month, although growth slowed from the previous month's pace, which was the fastest in more than five years.

The Institute for Supply Management, a private trade group, said Tuesday that its index of service-sector activity dropped to 57.3 last month, from 59.7 in February. That's the first decline in seven months. Still, any reading above 50 indicates expansion.

The sector employs about 90 percent of the work force, with a range of industries that include retail, health care, financial services and construction. The index plummeted to 37.6 in November 2008, at the height of the financial crisis.

The trade group last week said its manufacturing index expanded for the 20th straight month. Like the service sector index, the March reading of manufacturing activity was slightly lower than the nearly seven-year high hit in February.

Together, the two indices point to an economy that is growing at a steady and modest pace, despite some challenges.

"The report shows a few scattered signs of slowing momentum, but not enough to disrupt the overall picture of continued growth," Ryan Wang, an economist at HSBC Securities, said about the service index.

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One cause for concern was a sharp drop in a measure of current business activity, which dragged down the overall index. Some economists attributed part of that fall to interruptions in shipping and other activity stemming from the March 11 earthquake in Japan. The transportation and warehousing sector was one of two industries, out of 17, to report less business activity in March.

Toyota Motor Corp. said earlier Tuesday that the lack of parts from Japan will require it to temporarily shut down all its North American factories later this month. Auto dealers already are preparing for a shortage of Toyota models this spring and summer. Several companies that responded to the survey also expressed concerns about rising fuel prices and the impact of Japan's earthquake on the supply of computer equipment and other goods.

Still, a measure of prices paid actually dipped in March.

"Overall, most respondents remain confident about the direction of the economy," said Anthony Nieves, who oversees the ISM service sector index, which is compiled from a survey of purchasing and supply managers at about 375 companies.