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NEW YORK, June 3 (Reuters) - The U.S. services sector shrank for the eighth consecutive month in May though the rate of deterioration slowed, according to a report released on Wednesday.
The Institute for Supply Management's nonmanufacturing index edged up to 44.0 in May -- its strongest since October 2008 but still a contractionary reading. It was at 43.7 in April.
A gauge of employment in the sector also improved to its highest in seven months but new orders, a measure of future activity, weakened.
The report highlighted the uneven progress toward economic recovery for the United States, which is suffering its worst recession in decades.
"It kind of fits with all the other news we're getting: things are less bad but they're not yet growing," said Jonathan Basile, economist at Credit Suisse in New York.
"It's encouraging to see this stabilization process start to take hold, but at the same time the weakness does persist. These are still indications that we're not totally out of the woods yet."
Economists' median forecast in a Reuters poll called for a nonmanufacturing index reading of 45.0, below the 50 mark which divides expansion from contraction.
The last time it was not contracting was in September 2008, when the index was at 50.0.
U.S. stock indexes were flat in the immediate wake of the data. Government bonds rose slightly after the ISM report, which coincided with April data on factory orders that was weaker than expected.
The services sector represents about 80 percent of U.S. economic activity, including businesses such as banks, airlines, hotels and restaurants.
The ISM non-manufacturing employment index came in at a still-weak 39.0 in May but it improved from 37.0 in April. That was its highest showing since October 2008.
The new orders index weakened to 44.4 in May from 47.0 in April.
(Additional Reporting by Pedro Nicolaci da Costa, Editing by Chizu Nomiyama)