The Institute for Supply Management released a report on Wednesday showing an unexpected slowdown in the pace of growth in U.S. service sector activity in the month of April.

The ISM said its Services PMI fell to 57.1 in April from 58.3 in March, although a reading above 50 still indicates growth in the sector. The decrease surprised economists, who had expected the index to inch up to 58.5.

Anthony Nieves, Chair of the ISM Services Business Survey Committee, said the pullback by the index was mostly due to the restricted labor pool and the slowing of new orders growth.

The report showed the employment index slid to 49.5 in April from 54.0 in March, while the new orders index slumped to 54.6 from 60.1.

Meanwhile, the business activity index climbed to 59.1 in April from 55.5 in March, indicating an acceleration in the pace of growth.

"Business activity remains strong; however, high inflation, capacity constraints and logistical challenges are impediments, and the Russia-Ukraine war continues to affect material costs, most notably of fuel and chemicals," said Nieves.

The report also showed the prices index inched up to a record high of 84.6 in April from 83.8 in March, suggesting prices increased at a modestly faster pace.

The supplier deliveries index also rose to 65.1 in April from 63.4 in March, while the inventories index crept up to 52.3 from 51.7.

On Monday, the ISM released a separate report showing growth in U.S. manufacturing activity unexpectedly slowed in the month of April.

The ISM said its manufacturing PMI fell to 55.4 in April from 57.1 in March. While a reading above 50 still indicates growth in the sector, economists had expected the index to inch up to 57.6.

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