Job Losses at 345,000, Less Than Forecast; Rate at 9.4%

The pace of U.S. job losses slowed sharply last month, the strongest sign to date that the recession is diminishing, even as the unemployment rate hit its highest in nearly 26 years.

The Labor Department said Friday that U.S. employers cut 345,000 jobs in May, the fewest since September and far less than economists had forecast, after slicing 504,000 in April. The unemployment rate raced to 9.4 percent, however, the highest since July 1983, from 8.9 percent in April, partly reflecting a surge in people entering the labor force.

"It keeps hopes alive for a full recovery in the U.S. economy by the second half. It's a step in the right direction," said John Canally, investment strategist and economist for LPL Financial in Boston.

U.S. stocks pushed higher on the data, while bond prices fell and the dollar rose on the view the Federal Reserve — the U.S. central bank — may need to begin withdrawing its extraordinary monetary support for the recession-pummeled economy before year-end.

The relatively small decline in payrolls, which beat market expectations for a 520,000 drop, sparked rumors in financial markets that the government had published incorrect figures, but Labor Secretary Hilda Solis dismissed the rumors as false.

The U.S. economic recession, now in its 18th month, is the longest since the Great Depression and has wiped out six million jobs. March and April data were revised to show 82,000 fewer jobs were lost in those months than previously reported.

Brighter Light

"The light at the end of the tunnel just got a lot brighter. May's employment report brings clear evidence that the labor market is beginning to stabilize," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Mass.

The report supported other surveys and a recent decline in new applications for unemployment benefits that appeared to back perceptions that the rate of layoffs was decelerating. A raft of recent data — from gains in home sales to rising consumer confidence — has supported growing optimism that economic growth would resume in the second half of the year.

While the job losses in May were spread across almost all sectors, the pace of layoffs was slower than in prior months. Construction jobs fell 59,000 after dropping 108,000 in April, likely as a result of the government's $787 billion stimulus package.

The service-providing industry shed 120,000 positions after eliminating 230,000 in April. Manufacturing purged 156,000 jobs in May, possibly reflecting auto plant shutdowns in the wake of Chrysler's bankruptcy filing. The sector shed 154,000 positions in April.

Education and health services payrolls rose 44,000 after increasing 13,000 the prior month. The leisure and hospitality industry added 3,000 jobs, having shrunk consistently. Government, which in April added 92,000 jobs mostly related to preparations for the 2010 census, cut 7,000 in May.

Analysts said they expected payrolls to keep shrinking less severely in the months ahead, with the jobless rate peaking at about 10 percent next year as more people joined the labor market.

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A surge in new labor force entrants and a drop in employment pushed the jobless rate up a half-percentage point  in May, above market expectations for a rise to 9.2 percent.

"This is a reminder that getting the unemployment rate down will be a long, drawn-out task, as workers who had previously given up their job search return to the labor force," said Gault. "But the worst news is behind us, and job declines should progressively soften as the year proceeds."

In a reminder of the labor market's weakness, the length of the average work week eased to 33.1 hours from 33.2 in April. Average hourly earnings climbed to $18.54 from $18.52, putting earnings 3.1 percent above their year-ago level, the smallest 12-month gain since the period ended November 2005.

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