Jobless rate hits 9.4 percent, a 25-year high

A silver lining is the US economy shed fewer jobs in May than forecasters had predicted.

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Nick Ut/AP
Job seekers line up at the Anaheim Orange County Job Fair and Expo on Wednesday in Anaheim, Calif.

Momentum in the jobs market is finally starting to swing in a better direction.

For the past four months, the pace of job loss has slowed. Now, in another sign of better news for the US economy, the loss of jobs slowed in May to 345,000, lower than expected and half the average decline of each of the past six months, the government reported Friday.

But in a sign of how slowly companies are adding to payrolls, the unemployment rate rose from 8.9 percent in April to 9.4 percent last month, the highest rate in more than 25 years.

Despite the rising unemployment rate, economists viewed the report with cautious optimism. It shows the worst of the job losses are over, they say. The next step will be a bottoming out of job loss by fall. But, they warn, the US economy is not even close to becoming a dynamic creator of jobs.

“This recovery is still very gradual,” says Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla.

Jobless rate expected to keep climbing

In fact, economists anticipate the unemployment rate is likely to continue to rise in part because, as job losses diminish, more people are encouraged to hit the streets looking for work.

“The irony is the better things are actually getting, the more people try to participate in the economy,” says economist Bob Brusca of Fact & Opinion Economics in New York. “And as they come in even faster than the economy is improving, it drives up the unemployment rate.”

In a forecast on Friday, economist Sung Won Sohn at California State University, Channel Islands, predicts the unemployment rate will top out at 10.5 percent by year's end, followed by a jobless recovery. “Employers want to make sure that a sustained economic recovery is here before hiring,” he says.

Despite the fewer job losses, total job losses for the economy are eye-opening. Since the recession began in December 2007, there has been a net loss of more than 6 million jobs. Some 14.5 million Americans are currently out of work. If laid-off workers who have given up looking for work or are involuntarily working part-time are included, the unemployment rate would have been 16.4 percent.

Manufacturing remains hard-hit

Job losses continued to be high in manufacturing, which shed 156,000 jobs in May after lopping off 154,000 jobs in April. However, job cuts in construction, the retail sector, and the financial sector slowed compared with the previous month. The education, healthcare, leisure, and hospitality sectors added jobs in May.

The slowing of the job losses seems to be continuing. On Thursday, the US Department of Labor said first-time filers for unemployment benefits for the week ending May 30 fell to 621,000, 4,000 fewer claims than the previous week. At the same time, continuing claims, which have been rising for the past 20 weeks, fell 15,000 to 6.74 million.

“Typically, what happens as recessions draw to a close is the claims peak on average about eight weeks before the end of the recession,” says Mr. Brusca. “Then, the total number receiving jobless benefits peaks later, followed by the insured rate of unemployment,” he says. “Then, eventually, once the recovery begins, they all come down together.”

On Wednesday, the payroll processing company ADP said its monthly survey found that private, nonfarm payrolls slipped by 532,000 jobs in May. However, that assessment turned out to be too pessimistic.

Also on Wednesday, the Chicago-based outplacement firm Challenger Gray and Christmas said announced layoffs in May dropped to 111,182, a decline of 16 percent from April. But layoffs were still 7.4 percent higher than May of last year.

Census Bureau adds jobs

Even while job losses continue, there was at least one major new hirer: the US Census Bureau. In April, it hired only 60,000 employees, estimated Barclays Capital Research in New York. Most of these temporary hires are verifying addresses. By next spring, it expects to hire 700,000 temporary workers for the 2010 census.

But the census hiring had no impact on the May jobs numbers, which showed government hiring falling by 7,000 jobs, says Mr. Brown. "I am speculating that they let some of those temporary hires go," he says. “The census hiring will have a bigger impact next spring,” he predicts.

Looking at jobs on a regional basis, IHS/Global Insight in Lexington, Mass., reported that most states will not regain their prerecession employment levels until 2011 or 2012. The first to recover, says the group, will be Texas, Oklahoma, Utah, and Alaska, all resource-rich states. The slowest to recover jobs will be the industrial states of Michigan, Ohio, and Indiana.

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