INSTANT VIEW: Jobless rate surges in May to 5.5 pct

NEW YORK (Reuters) - U.S. employers shed jobs for a fifth straight month in May and the unemployment rate jumped to its highest in more than 3-1/2 years, partly because more people were trying to come back into the workforce, a Labor Department report on Friday showed.

KEY POINTS: * The unemployment rate rose to 5.5 percent last month from 5 percent, its highest level since October 2004. Some 49,000 jobs were cut from payrolls in May, up from a revised 28,000 that were lost in April. * Wall Street economists surveyed by Reuters forecast that 58,000 jobs would be lost in May but had foreseen the unemployment rate rising only to 5.1 percent. So far in 2008, job losses have totaled 324,000, the department said. * The number of people in the workforce climbed by 577,000 in May, up sharply from an increase of 173,000 in April. Department officials noted that in the period from April through July, there typically is an increase in the numbers of young people seeking temporary work when school is out. * There were substantial job losses in May in construction industries where 34,000 cuts were made, in manufacturing where 26,000 jobs were lost, and among providers of professional services where 39,000 jobs were lost.

COMMENTS:

TOM SOWANICK, CHIEF INVESTMENT OFFICER, CLEARBROOK

FINANCIAL LLC, PRINCETON, NEW JERSEY:

"Jobs data was horrible but also inflationary with hourly earnings rising much more than expected. The dollar has become toast versus the euro, as the European Central Bank focuses on inflation and the Federal Reserve seems willing to risk a run on the dollar and inflation because of uncertainty with respect to financial markets and uncertainty with respect to the direction of the economy."

MICHAEL MORAN, CHIEF ECONOMIST, DAIWA SECURITIES AMERICA,

NEW YORK:

"It was not a half-bad report except for the unemployment rate which clearly makes it a soft report. Most of the increase in unemployment was from workers entering the labor force and a lot of those workers were young workers, probably people getting out of school and not finding jobs right away. But that's still an indication of a soft economy.

"The payroll number was close to expectations. It suggested a soft labor market, but not one that is alarmingly soft. The decline was about in line with the average of the past several months and the sources of weakness are the same that we've seen in other recent months: construction, manufacturing and retail trade. Business services has also started to soften in recent months."

OWEN FITZPATRICK, HEAD OF U.S. EQUITY GROUP, DEUTSCHE BANK

PRIVATE WEALTH MANAGEMENT, NEW YORK:

"The data definitely points to the fact that this economy is struggling to grow. We're seeing that from bottom up standpoint in terms of layoffs when you look at what the airlines have announced over the last couple of weeks.

"We're not going to have the normal type of economic recovery that we normally see when the Federal Reserve is aggressively cutting interest rates, when you get trend line economic growth of well over 2, over 3 percent.

"In our view the economy is just going to muddle along and see very anemic type of growth, not only for the balance of this year but also in 2009.

"We're going to see less than 2 percent growth in 2009 and that type of growth rate is going to result in some dislocation on the employment side. It's one reason to be cautious here. The positives is that valuations are reasonable, and I think corporations in general are in great shape from a balance sheet standpoint.

"We haven't seen any inventory issues out there. So I wouldn't be too cautious in here. A lot of the economic issues are really centered around the consumer."

KEVIN GIDDIS, MANAGING DIRECTOR OF FIXED INCOME, MORGAN

KEEGAN, MEMPHIS, TENNESSEE:

"The real news is the unemployment rate jump."

"That is significant...and that is where a lot of the bid came from in the bond market."

"Certainly it is a long-end rally in the bond market."

"What this does for policy is put the Fed very much in a neutral position for a few months."

CARY LEAHEY, ECONOMIST AND MANAGING DIRECTOR, DECISION

ECONOMICS, NEW YORK:

"This is a wild one. You had a decline in payrolls of only 49,000 which seems to be validated by the details of the report and the market sold off sharply on the thought that this was yet another indicator that the recession would prove shallow and maybe short.

"But then investors were caught deep in whipsaw dust by the huge jump in the unemployment rate to 5.5 percent and rallied strongly, thinking that maybe the recession is not over until it's over.

"This makes it even harder for the Fed to contemplate a rate hike before the election. Even Volcker did not start to raise rates when the unemployment rate was rising significantly."

DAVID KELLY, CHIEF MARKET STRATEGIST, JPMORGAN ASSET

MANAGEMENT, NEW YORK:

"The spike in the unemployment rate is a little shocking to people and that certainly will be the headline.

"It's not quite as bad as that looks because this is a volatile number and the government said that almost 600,000 more people were looking for a job in May than in April. If the labor force grows by almost 600,000, then you would expect to see some increase in the unemployment rate.

"Beneath that, though, the payroll numbers of down 49,000 really confirms that although this may be called a recession it still looks like it's going to be eventually a pretty mild recession.

"The Fed needs to stay its course, stay at 2 percent. Everybody needs to remember, the key thing, is that employment is a lagging economic indicator. Very important to remember that. Because these employment numbers are going to be sending scary signals all year long even if the economy turns the corner here."

ROBERT MACINTOSH, CHIEF ECONOMIST, EATON VANCE MANAGEMENT,

BOSTON:

"The unemployment rate is the shocker. The actual payroll number itself was consistent with what we have been seeing in terms of a slowdown but not quite a recession. But the unemployment rate gives you a much weaker economic outlook than the payrolls number. I think historically the Fed has focused on the non-farm payroll number.

At this point there is still no way the Fed can consider a (rate) cut -- the dollar is enjoying some life here, and they can't jeopardize that."

STEVEN WIETING, ECONOMIST, CITIGROUP, NEW YORK:

"We've got a sixth consecutive modest monthly decline in private employment. This is a period of cyclical retrenchment and the unemployment rate is only now catching up."

LINCOLN ANDERSON, MANAGING DIRECTOR AND CHIEF INVESTMENT

OFFICER, LPL FINANCIAL, BOSTON:

"The payroll decline at 49,000 is another in a series of moderate declines. The net revisions were small. This just points to a labor market that's reflecting a soft economy. It doesn't reflect an economy that's falling off a cliff."