Unemployment Rate Hits 25-Year High, But Losses Narrow

By , Money Morning •

By Bob Blandeburgo
Associate Editor
Money Morning

The U.S. unemployment rate increased to 9.4% for  May, while actual job losses dropped to 345,000, according to a U.S. Labor Department report released yesterday (Friday).

While the unemployment rate is at its highest level in 26 years, the narrowing of job losses last month is an indicator that the recession is tapering off. The job loss number is well below the median 520,000 decrease expected by economists surveyed by Bloomberg News. April's job losses were 504,000 after a Labor Department revision.

"This tide is turning," Richard Yamarone, director of economic research for Argus Research, told The Associated Press. "We expect this trend of slower job loss to continue throughout the year."

While the news is positive, the U.S. Federal Reserve said unemployment will remain high into 2011, and economists said the United States might not return to its normalized rate in the 5% range until 2013. Yamarone predicts the rate will top off at 10.2% early next year.

Indeed, the bankruptcies of General Motors Corp. (OTC: GMGMQ) and Chrysler LLC. are likely to result in further job losses in the near future. GM is expected to employ 72,500 in the United states by 2012, down from its peak of more than 500,000. 

The hardest hit industries in May were:

By themselves, the numbers are grim. But like the overall job loss number, losses in most sectors are slowing. For example, the slowing of construction job losses (59,000 in May, versus 108,000 in April) give credence to the "hyper local" stats that show the housing market's bottom is in the past.

Not all industries lost jobs. Education/health services and leisure/hospitality-both subsets of the service-providing industry-added 44,000 and 3,000 jobs, respectively.

The job loss slowdown is "encouraging," White House Council of Economic Advisers Chair Christina Romer told Bloomberg in an interview. However, Romer was careful to point out that "you can't ever say when the unemployment rate is 9.4% that's good news, of course. We know the economy is still in a severe recession, but what this does say is we're seeing the pattern we'd expect to see."

Another indication the recession is letting up is that the number of Americans drawing unemployment benefits decreased for the first time in four months.

The jobless rate does not include those who have taken part-time jobs below their skill levels to make ends meet, also known as underemployment. If the underemployed are included in the calculation, the jobless rate would have been 16.4%, the highest since the tracking of such records began 15 years ago.

One such company that could contribute to such underemployment is Wal-Mart Stores Inc. (NYSE: WMT). The Bentonville, Ark.-based retailer plans on adding 22,000 jobs for the 142 to 157 stores it may open or expand between now and Jan. 31.

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