Jobless Rate Unexpectedly Dips to 4.4% in May

The nation's unemployment rate fell for the first time in eight months, the Labor Department announced Friday, in a sign that the U.S. job market held up better than expected despite continuing layoffs.

The May report came as a surprise to the many analysts who were looking for the unemployment rate to rise to 4.6 percent and for businesses to cut as many as 50,000 jobs during the month.

Instead, the actual job reduction was limited to 19,000. The government, as part of its annual benchmark revision of the figures, found more jobs were created than originally reported in the past 12 months.

The new figures showed that instead of declining, payroll jobs rose by 59,000 in March and fell less than previously reported in April.

The 19,000 job losses in May reflected a rebound in hiring in the vast service sector of the economy, where 70,000 new jobs were created last month, a far better showing than the small gain of 6,000 jobs in April.

However, although the percentage of people out of work declined, trends in nonfarm payrolls remained weak.

Manufacturing continued to suffer heavy layoffs, losing an additional 124,000 jobs in May. Since July, manufacturers have laid off 675,000 workers as they struggled to cope with shrinking demand and a rising backlog of unsold goods. More than two-thirds of the factory layoffs have occurred since December.

Economists are concerned that the weakness in manufacturing could spread to the rest of the economy, especially if the layoff notices cause consumers, who account for two-thirds of total economic activity, to cut back on their spending.

Last week, the government said the gross domestic product, the broadest measure of economic health, grew at a barely discernible 1.3 percent rate in the first three months of this year, little changed from the anemic 1 percent growth in the final three months of last year,

Some analysts are concerned that the GDP could turn negative in the current April-June quarter, but they are hoping to avoid the standard definition of a recession — two consecutive quarters of declining GDP — with a rebound this summer.

They believe chances for such a rebound have been significantly improved by passage last week of a $1.35 trillion, 10-year tax cut, which includes about $40 billion in tax relief this year in the form of rebate checks for taxpayers and slightly lower individual withholding rates. The hope is that consumers will start spending their rebate checks as soon as they receive them. The massive mailing is expected to begin next month.

Additionally, the Federal Reserve since January has been fighting the downturn with its most aggressive credit easing effort since Alan Greenspan became chairman nearly 14 years ago. The Fed has cut interest rates by 2.5 percentage points in five one-half-point increments and many analysts are looking for a sixth move when Fed policy-makers next meet on June 26-27.

Last week, Greenspan said he believed those rate cuts would work to deliver stronger growth by the end of this year. But he cautioned that the worst of the slowdown, which has gripped the country since last summer, may not be over.

Greenspan said he saw little indications that inflation pressures were beginning to intensify, meaning the Fed will have room to fight the economic weakness with lower interest rates.

For May, the Labor Department said average hourly earnings rose by just 4 cents to $14.26, an increase of 4.3 percent from a year ago.

The Associated Press and Reuters contributed to this report.