The Institute for Supply Management said Tuesday that its services index fell to 51.4 last month from 55.5 in July. The August reading was the lowest since February 2010, and last month's 4.1-point drop was the biggest since November 2008 when the U.S. economy was in a recession. Still, anything above 50 signals growth, and services firms have now expanded for 79 straight months.

New orders and hiring grew more slowly in August. Export orders fell. Eleven services industries reported growth in August; seven, including retailing, contracted.

Stephen Stanley, chief economist at Amherst Pierpont Securities, said the report is the latest that shows the economy was "noticeably weaker than expected" in August. He says the ISM services reading gives the Federal Reserve another reason to delay an interest rate increase at its September meeting.

The ISM is a trade group of purchasing managers. Its services survey covers businesses that employ the vast majority of workers, including retail, construction, health care and financial companies.

Services companies have continued to grow despite a less-than-stellar U.S. economy. Last Friday, the Labor Department reported that employers added a modest 151,000 jobs in August. Of those, almost all — 150,000 — were generated by private services firms. Factories cut 14,000 jobs last month, and the ISM said its manufacturing index contracted in August for the first time since February.

Overall economic growth slowed sharply starting late last year. From April through June, the economy expanded at a lukewarm annual pace of 1.1 percent, dragged down by the third straight quarterly drop in business investment. The investment slump partially reflects cutbacks in the energy industry in the face of low oil and gas prices.