The U.S. shed 345,000 jobs in May, the government reported on June 5—far fewer than analysts expected. However, the unemployment rate rose to 9.4% from 8.9% in April. Analysts had predicted that 550,000 jobs would be lost in May and the unemployment rate would reach 9.2%.
Adding to the positive news, job losses from April and March were revised downward: from 539,000 to 504,000 in April, and from 699,000 to 652,000 in March.
"[The report] is generally good news," says Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland. "The economy lost 159,000 fewer jobs than it did in April. None of us foresaw such an improvement."
Stock futures gained following the report, and bond yields moved higher. Economists say the report reinforced the idea that the worst of the job hemorrhaging is over. "The data are clear evidence that the extreme phase of the recession is behind us," says Nigel Gault, chief economist for IHS Global Insight (IHS), an economic forecasting firm. "Business reacted quickly in the fourth quarter of last year and the first quarter of this year when they saw themselves going down. They're now realizing the economic decline is starting to slow down, and [they] aren't cutting jobs at the same extreme pace."
The number of unemployed increased by 787,000, to 14.5 million, the government said. Steep job losses continued in manufacturing, but declines moderated in construction and several service-providing industries.
The data suggest that the pace of job loss may be easing from the steep declines of the end of 2008 and the first months of 2009. But even if the worst of the job-loss free fall is over, the labor market remains weak. Many economists expect unemployment to reach double digits by early 2010, possibly later this year.
Long-Term Unemployment Up
One worrying sign is that long-term unemployment continued to grow. About 3.95 million Americans have been unemployed for six months or more, up 268,000 from April.
Other measures of unemployment included in May's report indicate a higher jobless rate than the commonly cited 9.4%. Factoring in workers that have left the workforce and those who work part time but would prefer full-time jobs—an alternate measure known as "U-6" in the jobs report—the jobless rate reached 16.4%, up from 15.8% last month.
Paul Ashworth, senior U.S. economist at Capital Economics in Toronto, says the surge in the unemployment rate was boosted by workers returning to the active labor force as much as the ongoing job losses. "Overall, this report adds to the evidence that the economy is getting back to where it was before the financial crisis intensified last September," he says. "Nevertheless, the bottom line is that jobs are still being lost at an unusually high rate, suggesting that the economy is still in recession. But if the rate of improvement continues, output should begin to expand again in the second half of the year."
In May health care posted gains, while government employment was generally unchanged. Most other industries continued to lose jobs, albeit at a slower pace. In May the construction industry lost 59,000 jobs, an improvement over 108,000 jobs lost in April. Since construction employment peaked in September 2006, the sector has lost more than 1.4 million jobs.
The retail sector—in which job losses have declined sharply in the last two months—shed 17,500 jobs in May. The industry has lost 766,000 jobs since November 2007. Finance and insurance industries lost 19,300 jobs in May. Since December 2007 finance and insurance have lost more than 300,000 jobs.
The manufacturing industry remains a dark patch in the jobs report, as job losses actually increased since last month. The sector lost 156,000 jobs in May, in most component industries, adding to the 154,000 lost in April. "There is nothing to cheer about today," says Scott Paul, executive director of the Alliance for American Manufacturing, an industry lobbying group.
Herbst is a reporter for BusinessWeek in New York.