US service companies grew at a faster pace in August than July and stepped up hiring, further evidence that the economy may be improving.

The Institute for Supply Management said today that its index of non-manufacturing activity increased in August to 53.7, up from a July reading of 52.6.

Any reading above 50 indicates expansion.

Service companies employ roughly 90% of the work force and include everything from retail and construction companies to health care and financial services firms. The service has now grown for 32 straight months.

The report also showed that hiring among service companies jumped in August. A measure of employment rose to 53.8, up from 49.3 in July.

The increase in hiring was among a handful of hopeful signs about the job market one day ahead of the government's closely watched report on August employment.

The Labor Department said applications for unemployment benefits fell by 12,000 last week to a seasonally adjusted 365,000. And payroll provider ADP said businesses added 201,000 jobs last month, the best job growth reported by the survey since March.

Economists forecast that Friday's government report will show employers added 135,000 jobs last month. The unemployment rate is expected to stay unchanged at 8.3%.

In July, employers added 163,000 jobs.

The unemployment rate has been above 8% for 42 straight months, the longest stretch since the Great Depression.

Economists were encouraged by a modest pickup in consumer spending in July, which drives nearly 70% of growth. But they cautioned that activity in future months could be hurt by rising gasoline prices, higher food prices and weak wage growth.

A separate ISM report this week showed that manufacturing shrank for a third straight month in August.

Manufacturing has slumped as American businesses have scaled back demand for machinery, equipment and other investments. It's also contracting in just about every major economy overseas, including the 17 countries that use the euro, plus Britain, China, Japan and Brazil.

The manufacturing weakness in the US and around the world was expected to keep overall growth and hiring tepid through the November elections.

That weakness may help persuade the Federal Reserve to announce new efforts to support the economy when Fed officials next meet on September 12-13.