July 6 (Bloomberg) -- U.S. service industries from retailers to homebuilders shrank last month at the slowest pace in nine months, as measures of new orders and employment increased.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose more than forecast to 47 from 44 in May, according to data from the Tempe, Arizona-based group. Readings less than 50 signal contraction.

The index’s third straight monthly improvement reflects signs of stabilization in housing and consumer spending and increased demand from overseas as a gauge of export orders rose to the highest level since February 2008. Still, mounting job losses and stagnant wages are likely to restrain some domestic purchases, limiting the impact of any recovery.

The economy is “no longer contracting but it’s certainly not back to healthy growth,â€쳌 said Robert Stein, senior economist at First Trust Advisors in Lisle, Illinois. “We’re kind of in that interim stage where you could still lose a lot of jobs but things are gradually rising.â€쳌

The index was projected to increase to 46, according to the median forecast in a Bloomberg News survey of 64 economists. Estimates ranged from 44 to 48.

The ISM non-manufacturing industries index of employment rose to 43.4 from 39 the prior month, and its gauge of new orders increased to 48.6 from 44.4.

‘Encouraging Report’

A gauge of export orders gained to 54.5 from 47 while a measure of prices paid rose to 53.7 from 46.9.

“Overall, it’s an encouraging report,â€쳌 Anthony Nieves, chairman of the ISM survey, told reporters on a conference call from Beverly Hills, California. “We’re starting to see this leveling off. In the next few months, we might see some uptick.â€쳌