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U.S. Payrolls Fall, Unemployment Rate Climbs to 5.5%
By Shobhana Chandra
June 6 (Bloomberg) -- The U.S. lost jobs in May for a fifth month and the unemployment rate rose by the most in more than two decades, signaling that the world's largest economy is stalling.
Payrolls fell by 49,000 after a 28,000 decline in April, the Labor Department said today in Washington. The jobless rate increased to 5.5 percent from 5 percent, the biggest jump since February 1986.
Employers are cutting back to protect profits as raw- material costs soar and sales slow. A weaker job market is another blow to Americans hit by falling home values, scarcer credit and higher fuel bills, adding to the risk that the longest consumer-spending expansion on record will come to an end.
``More payroll losses are in store in coming months,'' Carl Riccadonna, an economist
at Deutsche Bank Securities Inc. in New York, said before the report. ``It corroborates fears of a consumer slowdown or a recession. That's a major concern right now.''
Treasuries slid after the report, sending yields on benchmark 10-year notes down to 3.99 percent at 8:34 a.m. in New York, from 4.04 percent late yesterday. Futures on the Standard & Poor's 500 stock index dropped 0.6 percent to 1,396.30. The dollar weakened.
Revisions subtracted 15,000 from payroll figures previously reported for March and April.
Economists had projected payrolls would drop by 60,000 after a previously reported 20,000 decline the prior month, according to the median of 79 forecasts in a Bloomberg News survey. Estimates ranged from decreases of 150,000 to 10,000. The jobless rate was forecast to rise to 5.1 percent from 5 percent.
The unemployment rate, the highest since October 2004, reflected an expansion of the workforce, led by an influx of teen-agers, that exceeded the number of new jobs available.
A loss of jobs is one of the criteria used by the National Bureau of Economic Research to determine when recessions begin and end. The group, the official arbiter in the U.S., defines contractions as a ``significant'' decrease in activity over a sustained period of time. In addition to payrolls, changes in sales, incomes, production and gross domestic product are also considered.
Payrolls shrank by 324,000 workers in the first five months of the year. In 2007, the economy generated 91,000 new jobs a month on average.
``We've never seen a run of negative payroll numbers like this without the economy being in a recession,'' Avery Shenfeld, senior economist
at CIBC World Markets in Toronto, said before the report. ``We are in a mild recession. We expect to see a few months of declines that are worse than this.''
Factory payrolls fell 26,000 after declining 49,000 in April. Economists had forecast a drop of 40,000. The decrease included a drop of 7,500 computer and electronics manufacturing jobs. Auto factories added 4,400 workers.
General Motors Corp. has said 19,000 workers, or about 26 percent of its union workforce, accepted the latest offer to leave, and most of those will stop working by July 1. Ford Motor Co. will trim salaried-employee costs by 15 percent by eliminating contract workers and not filling open jobs.
The protracted housing slump and resulting collapse in subprime lending were also reflected in today's report. Payrolls at builders fell 34,000 after decreasing 52,000. Financial firms decreased payrolls by 1,000, after a gain of 1,000 the prior month.
Service industries, which include banks, insurance companies, restaurants and retailers, added 8,000 workers after increasing by 72,000 in April. Retail payrolls decreased by 27,100 after a drop of 38,700.
Government payrolls increased by 17,000 after a gain of 12,000, indicating the total decline in private payrolls was 66,000.
The number of Americans receiving jobless benefits surpassed 3.1 million in May for the first time in four years, indicating employees that are being let go are having a more difficult time finding new jobs.
Consumer confidence last month sank to the lowest level in more than 15 years as the employment outlook deteriorated, according to a report from the Conference Board, a New York research group.
``Households continue to face significant headwinds, including falling house prices, a softer job market, tighter credit and higher energy prices,'' Federal Reserve Chairman Ben S. Bernanke said in a speech this week. The second quarter may be ``relatively weak.''
The average work week was unchanged at 33.7 hours and the factory work week also remained unchanged at 41 hours. Overtime decreased to 3.8 hours from 4 hours. That brought the average weekly earnings up by 0.3 percent to $604.58 last month.
Workers' average hourly wages rose by 5 cents, or 0.3 percent, to $17.94. Economists surveyed by Bloomberg had forecast a 0.2 percent increase from the prior month and a 3.4 percent gain for the 12-month period.
Declines in employment signal consumer spending, which grew in the first quarter at the slowest pace since the 2001 recession, will keep slowing.
``The customer is clearly under pressure when it comes to higher gas and food prices,'' Thomas Schoewe, chief financial officer at Wal-Mart Stores Inc., told reporters yesterday.
Wal-Mart, the world's largest retailer, and Costco Wholesale Corp. yesterday said sales climbed more than analysts estimated as shoppers sought discounts to offset soaring food and fuel bills.
The surge in energy costs is also hurting service providers. Continental Airlines Inc. and UAL Corp.'s United Airlines this week announced they will cut additional jobs and shrink their jet fleet to trim expenses.
``The airline industry is in a crisis,'' Continental's Chief Executive Officer Larry Kellner and President Jeff Smisek said in a memo to the Houston-based carrier's employees. The reductions ``are necessary to secure our future.''