Many companies that responded to the survey said that weather still weighed on their business, particularly earlier in the month. That suggests business could improve further in April.
"The economy is slowly recovering from the weather-induced freeze and we expect a further thawing during the spring," said Paul Dales, an economist at Capital Economics.
The survey covers businesses that employ 90 percent of the workforce, including retail, construction, health care and financial services firms.
The ISM's survey adds to other evidence that the economy is picking up as the weather improves. Freezing temperatures and severe snowstorms in January and February had shut down factories, interrupted work at construction sites and cut into car sales as consumers remained at home.
But automakers said Tuesday that sales rose 6 percent in March. That suggests Americans are willing to spend on big purchases, a hopeful sign for the broader economy.
And the ISM's separate survey of manufacturers, released Tuesday, rose to 53.7 last month. Factories cranked out more goods and new orders rose, the survey found. But manufacturers added jobs at a slower pace.
The number of Americans seeking unemployment aid rose last week but remained at close to pre-recession levels. The four week average of applications, a less volatile measure, stayed near a six-month low. That suggests companies are cutting fewer workers and may even be hiring more.
Still, service companies are growing at only a modest pace. The index has drifted downward after peaking at 57.9 in August.
Most economists expect growth slowed in the January-March quarter to a 1.5 percent to 2 percent annual rate. That would be slower than the fourth quarter's 2.6 percent pace. But growth is expected to accelerate to nearly 3 percent for the rest of the year, as hiring improves and Americans spend more.