INSTANT VIEW: Payroll losses of 345,000 beat expectations

NEW YORK (Reuters) - U.S. employers cut 345,000 jobs last month, the fewest since September and far less than forecast, according to a government report on Friday that was more evidence the economy's severe weakness was diminishing.

KEY POINTS:

* However, the Labor Department said the unemployment rate raced to 9.4 percent, the highest since a matching rate in July 1983, from 8.9 percent in April.

* March and April's job losses were revised down to show a smaller declines of 652,000 and 504,000, respectively.

* Analysts polled by Reuters had forecast non-farm payrolls dropping 520,000 in May. The unemployment rate had been forecast to rise to 9.2 percent.

* Payrolls in construction industries fell 59,000 after dropping 108,000 in April, likely as a result of the government's historic $787 billion stimulus package.

* The service-providing industry shed 120,000 positions after eliminating 230,000 in April. The manufacturing sector purged 156,000 jobs in May, likely reflecting auto plant shutdowns in the wake of Chrysler's bankruptcy filing. The sector shed 154,000 in April.

* Since the start of the recession in December 2007, the economy has lost 6.0 million jobs, the department said.

COMMENTS:

FRANK HSU, DIRECTOR OF GLOBAL FIXED INCOME, FIMAT, NEW YORK

"The reaction is all over the place. The market turned this into a very bullish (reading) on the economy, so the long end sold off big-time.

"Some people think with the unemployment rate so high even though the nonfarm payrolls are down less than expected it doesn't indicate the economy is improving that much."

JOEL NAROFF, PRESIDENT, NAROFF ECONOMIC ADVISORS, HOLLAND,

PENNSYLVANIA:

"We should continue to see Treasury rates moving up in the long end. From the medium-term five years on out, clearly those rates have a way to go. And we may even see two- and three-year rates start moving out as the realization that the economy is gong to start to come around takes hold.

"Businesses had adjusted already to the slowdown and what was expected to be a recession through the rest of this year, and I would not be surprised to see a continuation of the easing back in the payroll losses."

NIGEL GAULT, CHIEF U.S. ECONOMIST, IHS GLOBAL INSIGHT,

LEXINGTON, MASSACHUSETTS:

"That's a huge improvement (in private employment) from the previous month, down minus 596 to minus 338... It's mostly on the services side, but some in construction and there are also some changes from the previous couple of months.

"There's a very clear trend toward a slowing in the rate of job decline... I think we'll continue to see job losses, but I think we'll see them progressively less severe.

"The message is the most extreme phase of hiring cuts in capital spending, that's now behind us. Firms were very quick to react to the downturn in the economy.

"They were trying to make sure that they didn't get stuck with too many workers and have to make huge cuts later on. They reacted quickly, they've done what they needed to do and they don't have to be as cautious as they were previously.

"If the payroll number had been in line with expectations they would have focused on the unemployment rate, but they'll love the payroll numbers. The unemployment rate, I haven't seen the numbers, but I wouldn't be surprised it has something to do with teenagers coming into the work force."

HUGH JOHNSON, CHIEF INVESTMENT OFFICER, JOHNSON ILLINGTON

ADVISORS, ALBANY, NY:

"Obviously when you look at these numbers it's hard to find something that's terribly disappointing with the possible exception of the unemployment rate rising to 9.4 percent from 8.9 percent. But it seems to be consistent with the current view that although we are in a recession, the recession is clearly getting less worse.

"What is encouraging is that although we lost both construction and manufacturing jobs, we lost fewer, suggesting that the manufacturing and housing sectors of the economy are also getting less worse. Preliminarily you have to say these are good numbers."

TJ MARTA, CHIEF MARKET STRATEGIST, MARTA ON THE MARKETS LLC,

SCOTCH PLAINS, NEW JERSEY:

"This is highly conflicted data. The markets are reacting to the nonfarm payrolls number, but I would tend to say something is very fishy with the data.

"The market is running with the payrolls number and I do not necessarily think that is correct. I would be loath to react given such a bifurcated release. Nonfarm payrolls is a bit more forward-looking and showing the bleeding and deterioration by the action of employers is moderating, but the unemployment rate suggests this is much stickier. Labor market problems are more intransigent and would not see it as glowing as the market seems to think."

CHRIS RUPKEY, SENIOR FINANCIAL ECONOMIST AT BANK OF

TOKYO-MITSUBISHI UFJ, NEW YORK:

"Based on the latest job count readings, it looks like the economy has hit bottom and the recession is all but over.

"The storm clouds of recession appear to be clearing as the green shoots of recovery start to take hold. Companies are cutting workers, but at a reduced rate. The job losses are still weak, but the rate of job losses appears to be moderating somewhat. The recovery is not in doubt but the economy is not out of the woods yet, and full recovery is several months away.

"The odds are good though that the unemployment rate will peak just short of the dreaded double-digit level."

SHAUN OSBORNE, CHIEF CURRENCY STRATEGIST, TD SECURITIES,

TORONTO:

"Better-than-expected jobs number overall. This has firmed recovery hopes in the U.S. We have seen a steepening in the yield curve -- we've got new highs in the 2s and 10s. In the currency market, the dollar is selling off against the euro in this environment and we expect it to be soft for the rest of the session."

CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK

"We are still losing a lot of jobs but just a lot less. This is great news.

"The jobless rate is a lagging indicator. We are going to see it peak at 10 percent to 10.5 percent. We could even see it go up to 11 percent... We are going to see more people returning to the labor force.

"The freefall in retail is behind us. That goes the same for trade/shipment... Right now we are on a recovery track."

KURT KARL, CHIEF US ECONOMIST, SWISS RE, NEW YORK:

"Good news at last. At some point we had to start moving to the 300,000 range, after all we already laid off an incredible amount of people. So this reading is probably not an outlier, we are likely to keep improving on that front until the end of the year. The headline number is so good that it's obvious that we are going to have a positive reaction in most markets at least initially. I wouldn't be surprised though if by the end of the day any rally fades."

GEORGE DAVIS, SENIOR CURRENCY STRATEGIST, RBC CAPITAL MARKETS,

TORONTO:

"The headline number is obviously stronger than expected, but last month's job losses were also revised lower. It does look at first blush like a positive number. We are seeing a reduction in risk aversion. Equity futures are rallying, and that's been an environment in which the dollar tends to suffer. That's what's happening here.

"I don't think it's the better number that's such a surprise but the size of the deviation. I think it will set the tone for the day with the dollar under pressure. The data provides another piece of evidence to support the theory (that the U.S. economy is improving)."

RUSS CERTO, MANAGING DIRECTOR, RATES GROUP, BROADPOINT CAPITAL,

NEW YORK:

"I think people are going to be skeptical as to the strength in the number. The first trade is anticipated, which is much lower. We are wondering if it's going to be too much of a good thing for markets, where the equity market, the dollar and commodities sniff out inflation, and it begins to have less than positive impact on those markets. These are higher nominal yields and we are seeing buying from our clients."

WILLIAM LARKIN, PORTFOLIO MANAGER, CABOT MONEY MANAGEMENT,

BOSTON:

"There is a lot of money on the sidelines. A number like this is going to give talk of an economic recovery much more confirmation.

"Treasuries are selling off like crazy. Taking a long term perspective, the safe haven bid for Treasuries is going to wane."

SUBODH KUMAR, CHIEF INVESTMENT STRATEGIST, SUBODH KUMAR &

ASSOCIATES, TORONTO:

"The job losses were than less than expected but the unemployment rate was higher. I think the expectation was that, based on retail sales, was that things weren't as bad as before.

"I think the jobs data should help the markets initially, but the issue is how far ahead are the markets anticipating recovery? We might see some early spreads but at the end of the day we'll remain range-bound.

"The drop is large enough to make people continue watching it. I think that if you were looking at it in terms of a red light or yellow or green light, this is an amber light whereas before it was red."

MARKET REACTION: STOCKS: U.S. stock indexes jumped. BONDS: U.S. Treasury debt prices fell sharply. DOLLAR: U.S. dollar fell against the euro, rose against the yen.