Unemployment Rate Hits 9-Year High, but Payrolls Drop Is Mild

The nation's unemployment rate (search) climbed to 6.1 percent in May, the highest level in nine years, but an unexpectedly mild drop in total jobs and an overhaul of earlier figures fueled hopes the soft economy may be poised for a pickup.

The rate was up one-tenth of a percentage point from April, peaking at a level not seen since the country was emerging from the last recession, the Labor Department (search) reported Friday. July 1994 was the last time the jobless rate was at 6.1. It was higher only in April 1994, at 6.4 percent.

One reason for last month's increase was that more people resumed their job searches, but failed to find work. Nearly 9 million people were unemployed in May.

Meanwhile, employers cut 17,000 workers from their payrolls in May -- a smaller decline than the 39,000 drop projected by U.S. economists in a Reuters survey.

The May jobs report included a major change in how Labor compiles its survey and calculates its results. These changes rendered the recent job picture less gloomy than it had appeared in earlier government estimates.

April payrolls were revised to an unchanged reading after Labor had earlier said they tumbled 48,000. However, March was revised down to show a 151,000 jobs drop versus an earlier 124,000 fall. In total, 151,000 jobs were lost over the two months, an improvement from Labor's prior report of a 172,000 slide in payrolls.

Industries driving the cuts were manufacturing, transportation and government.

Some sectors did gain jobs in May. Employment rose in construction and in service jobs, including education and health services.

Another positive sign in the report was the hiring increase of 58,000 at temporary employment firms. Economists closely watch that industry because it can signal if companies may begin to hire permanent, full-time workers.

But even if the economy improves later this year, as economists hope, the jobless rate still is expected to move higher — to as high as 6.5 percent.

Job growth probably won't be strong enough to accommodate all the additional job seekers who would enter the market, attracted by an improved climate, analysts say. That would contribute to a rise in the unemployment rate, which happened last month.

Federal Reserve (search) Chairman Alan Greenspan (search) has called recent reports on the nation's employment situation weak.

The sluggish job market so far hasn't caused consumers — the main force keeping the economy going — to shut their pocketbooks and wallets. But they are being more selective. Low interest rates, a refinancing boom that has left people with extra cash and solid home values are some of the factors offsetting the negative forces of the sluggish job market.

Those low rates also have fueled hiring in the construction industry (search).

Federal Reserve policy-makers have left a key short-term interest rate at a 41-year low of 1.25 percent since November. Greenspan has said rates are low enough to support economic activity, but the Fed also has left the door open to rate reductions down the road.

Many economists think the odds are growing that the Fed will lower short-term rates at its next meeting starting June 24.

Cautious companies, wanting their profits to heal more, have been wary of making big investments in capital spending and in hiring, major forces restraining the economy.

May's report showed that the average time for people to be out of work was 19.2 weeks. People out of work 27 weeks or longer grew slightly by 300,000 to 1.9 million.

Reuters and the Associated Press contributed to this report.