Unemployment Rate Hits 5.5%; Payrolls Shrink for Fifth Month (New York Times)


The American unemployment rate surged to 5.5 percent last month, the government said on Friday, the biggest increase in more than two decades. The report was the latestsign that workers face a darker outlook even as they struggle to cope with the housing slump and high energy prices that have cut into their spending power.

Employers also shed 49,000 jobs in May, the Bureau of Labor Statistics said in a statement. Payrolls have shrunk every month this year, the worst losing streak since 2003. Manufacturers, construction companies and the retail sector were the hardest hit, as businesses struggled with lower demand and looked to cut costs.

The jump in the unemployment rate, which was 5 percent in April, led to a sharp increase in the number of Americans who looked for jobs in May. The size of the work force grew, but fewer jobs were available, nudging up the percentage of unemployed to its highest level since October 2004.

The major stock exchanges fell sharply Friday morning as investors weighed the report's implications on consumer spending and the broader economy. The Dow industrials dived more than 200 points, while the Standard & Poor's 500-stock index was down about 1.3 percent.

The jump caught many economists off guard.

"This is a pretty weak report. And you can't dismiss a five-tenths of a jump in the unemployment rate, even if you figure there's some flukiness to the data," Ethan Harris, the chief United States economist at Lehman Brothers, said.

That flukiness referred to teenagers, who tend to enter the job market in May as schools let out for the summer; the result is a bloated labor pool, Mr. Harris said.

But the bad news could not be entirely blamed on the adolescent set, he said. "The report suggests the trends in the labor market are quite weak."

"It's unambiguously ugly," said Robert Barbera, chief economist at the research and trading firm ITG. "The average American already knows that gas prices are up a ton and it's really hard to find a job. Sally and Sam on Main Street are already well aware of this, and that's why sentiment surveys are lower than they were in each of the last two recessions."

Economists said the report may keep the Federal Reserve from tightening interest rates in the near future. Fed policy makers meet again at the end of the month.

The government also revised down its payroll estimates for April and March for a net loss of 15,000 jobs.

The weak labor market is likely to raise anxieties among Americans, putting a pall on consumer spending. Many workers could be left with little room to maneuver if they lose their jobs, as home values decline and equity lines are maxed out.

Even employed Americans are feeling pressure. Salaries continued to shrink in May, after adjusting for inflation. Workers' wages grew in May but at an anemic pace, with rank-and-file employees earning $17.94 an hour, on average. That was a 5 cent increase — or 0.3 percent — from April.

In the last 12 months, hourly earnings have risen 3.5 percent, below the pace of inflation, which is running at about 4 percent a year.