Jobless rate leaps to 3-1/2 year high in May

By Glenn Somerville

WASHINGTON (Reuters) - The U.S. unemployment rate surged to 5.5 percent in May, its highest in more than 3-1/2 years, as the barely growing economy lost jobs for the fifth straight month.

It was the biggest jump in the monthly jobless rate in 22 years and raised concerns the economy was at increased risk of stalling into recession.

"The unemployment rate is the shocker," said Robert MacIntosh, chief economist at Eaton Vance Management in Boston.

"The actual payrolls number itself was consistent with what we have been seeing in terms of a slowdown but not quite a recession. But the employment rate gives you a much weaker economic outlook than the payrolls number," said MacIntosh.

The Labor Department on Friday said 49,000 jobs were shed by employers last month on top of 28,000 in April -- for a total of 324,000 lost since the beginning of the year. May's unemployment rate was up from 5 percent in April and was the highest since October 2004.

The soft jobs data helped drive stock prices steeply lower, but it sent U.S. Treasury debt prices soaring as investors bet it pushed back any chance that the Federal Reserve might raise interest rates before November's presidential election.

WHITE HOUSE UNEASE

It added to discomfort at the White House, where spokesman Scott Stanzel said the unemployment rate was "too high for our liking," though he noted it stemmed partly from more job-seekers and "not from a broad increase in layoffs"

The number of people in the work force climbed by 577,000 in May, up sharply from an increase of 173,000 in April. There typically is a rise in the number of young people seeking temporary work when school is out, the department said.

Tig Gilliam, head of staffing company Adecco SA's U.S. operations said more people appeared to be seeking work as high food and gasoline prices crimped their budgets.

"We do see more and more candidates because of gas prices and their inability to easily relocate; they are looking for work, but frankly they need something close to home," he said.

The surge of job seekers may have introduced "serious distortion" into the monthly data, said Alan Ruskin, chief international strategist at RBS Global Banking in Greenwich, Connecticut.

"The odds...favor a dip in the unemployment rate to 5.3 or 5.4 (percent) next month, which would look to be more in keeping with trend rather than the unusually low rate prior to this month, or the spike that has followed," he added.

Wall Street economists surveyed by Reuters forecast that 58,000 jobs would be lost in May, but had foreseen the unemployment rate rising only to 5.1 percent.

The unemployment rate and the number of jobs added or lost each month are based on separate surveys, so it is possible for the rate to rise or fall disproportionately with respect to the change in the number of workers on the payrolls.

PACE OF LOSSES SLOWER

Paul Ashworth, senior US. economist with London-based Capital Economics, noted that the pace at which jobs were being lost has actually slowed. In the first three months this year, job losses averaged about 83,000 monthly but in April and May it slowed to 38,500.

"Let's be clear: the economy is still very weak," Ashworth said. "The economy has little forward momentum, employment is shrinking and the unemployment rate could reach 6 percent by the end of the year."

There were substantial job losses in May in construction industries where 34,000 cuts were made, in manufacturing where 26,000 jobs were lost, and among providers of professional services where 39,000 jobs were lost.

One of the few bright spots was in education and health services where 54,000 more jobs were added in May on top of 61,000 in April.

(Additional reporting by Nick Zieminski and Chris Reese in New York, Editing by Andrea Ricci)

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