The U.S. services sector grew in January at its fastest pace since August 2005, according to an industry report released on Thursday, while a report from the U.S. Commerce Department showed an increase in new orders recieved by U.S. factories.

The Institute for Supply Management said its index of national non-manufacturing activity rose to 59.4 in January from 57.1 in December. The median forecast of 68 economists surveyed by Reuters was for a reading of 57.0.

A reading below 50 indicates contraction in the sector, while a number above 50 means expansion.

The reading marked the non-manufacturing sector's 14th straight month of growth.

The better-than-expected reading chimes with the ISM's twin report on Tuesday, which showed the manufacturing sector grew at its fasted pace in nearly seven years.

The services report's prices paid component rose to 72.1 from 69.5, while new orders rose to 64.9 from 61.4, mirroring strength in the manufacturing sector. The employment component rose to 54.5 from 52.6 and was at its highest level since May 2006.

New orders recieved by factories edged up in December and shipments of finished products were stronger, signaling a continuing pickup in activity for the nation's manufacturing sector.

The Commerce Department said on Thursday that total factory orders rose 0.2 percent to a seasonally adjusted $426.8 billion—contrary to forecasts for a 0.5 percent decline made by Wall Street economists surveyed by Reuters and following an upwardly revised 1.3 percent boost in November orders.

Excluding the volatile transportation category, December orders increased by 1.7 percent after a 3.3 percent jump in November. It was a fifth successive monthly pickup in orders excluding transportation goods.

Healthier manufacturing activity has helped lead recovery from the recession triggered by the 2007-2009 financial crisis and shows signs that it will continue to do so. Machinery orders were up 10.6 percent in December, helping offset a 12.7 percent decline in orders for transportation goods.

Unfilled orders eased slightly by 0.4 percent in the closing month of 2010 but the department noted that followed eight straight months in which orders had posted increases.