Pace of job losses slowed in May

updated 6:51 p.m. ET June 5, 2009

WASHINGTON - Employers throttled back on layoffs in May and cut the fewest jobs in any month since the financial crisis erupted last fall — raising the brightest hope yet that an economic recovery will take hold later this year.

But with companies still reluctant to hire, the nation’s jobless rate rose to a quarter-century high of 9.4 percent, and it likely will keep rising into 2010, possibly within striking distance of its post-World War II peak of 10.8 percent.

The economy shed 345,000 jobs in May, the Labor Department said Friday — half what it was losing in a month at the start of the year. But the report also underscored how hard it has been for America’s 14.5 million unemployed to find new jobs.

“Less bad, yes,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, said, summarizing the economy. “Good, no.”

Companies probably won’t ramp up hiring until they feel sure a recovery is here to stay. Still, considering the damage the recession has wrought — 6 million jobs lost since December 2007 — it was encouraging that employers cut far fewer jobs in May.

The 345,000 jobs lost was down sharply from 504,000 in April, and an even bigger improvement over the average of nearly 700,000 jobs lost monthly during the first quarter of this year.

“The light at the end of the tunnel just got a lot brighter,” said Nigel Gault, chief U.S. economist at IHS Global Insight.

But not so bright that economists expect more employers to start hiring again this year. Economists expect the pace of layoffs to keep tapering off, but they don’t think the economy will begin to create jobs steadily until late next year at the earliest.

“Payrolls are learning to crawl but far from walking,” said Michael Feroli, economist at JPMorgan Economics.

Stocks rallied on the better-than-expected news, but then surrendered most of the gains. The Dow Jones industrial average made a brief foray into positive territory for 2009, then pulled back to close up about 13 points at 8,763.13.

The job losses was the fewest since September and the fourth straight month in which the pace of layoffs slowed. In another heartening note, job losses for March and April turned out to be 82,000 less than the government had reported.

Video   Is the recession over? June 5: After Friday’s better-than-expected employment report, a panel of experts on CNBC tackles the question. CNBC

“This tide is turning,” said Richard Yamarone, economist at Argus Research. “We expect this trend of slower job loss to continue throughout the year.”

With no place for the out-of-work to land, the unemployment rate bolted to 9.4 percent from 8.9 percent in April. It was the highest rate since August 1983.

Hundreds of thousands of people, perhaps feeling more confident about their job prospects, streamed back into the labor force last month looking for work. That was a factor in the jobless rate’s rise, economists said.

Labor Secretary Hilda Solis called the uptick in unemployment “unacceptable” and pledged to bring it down by helping the unemployed get new skills or training.

Including laid-off workers who have given up looking for new jobs or have settled for part-time work, the so-called underemployment rate would be 16.4 percent in May, the highest on record dating to 1994.

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