WASHINGTON (Reuters) - The U.S. unemployment rate surged to 5.5 percent in May, its highest in more than 3-1/2 years, as the barely growing economy lost jobs for the fifth straight month.
The jump in the monthly jobless rate was the biggest in 22 years. Together with a whopping surge in oil prices and a flare-up in Mideast tensions, it renewed fears the U.S. economy was at growing risk of sliding into recession.
Stock prices took their biggest tumble since February 2007 as investors grew panicky at the possibility of further oil-price spikes and potential violence after an Israeli official said an attack on Iranian nuclear sites looked “unavoidable.”
Economist Robert MacIntosh of Eaton Vance Management in Boston described the May US. jobless rate as a “shocker” but not enough to conclude growth was completely stalling.
“The actual payrolls number itself was consistent with what we have been seeing in terms of a slowdown but not quite a recession. But the employment rate gives you a much weaker economic outlook than the payrolls number,” said MacIntosh.
The Labor Department on Friday said 49,000 jobs were shed by employers last month, on top of 28,000 in April -- for a total of 324,000 lost since the beginning of the year. May’s unemployment rate was up from 5 percent in April and was the highest since October 2004.
At a swearing-in event for a new Housing and Urban Development secretary, President George W. Bush briefly referred to the disappointing jobs report but conceded only that it signaled slower growth.
“It’s clearly a sign that there is consistently slow economic growth,” Bush said.
The Dow Jones industrial average plunged 394.64 points, or 3.13 percent, to close at 12,209.81, while the high tech-laden Nasdaq composite index fell 2.96 percent to end at 2,474.56. Markets were beset by fears that a steady drain in jobs and surging oil prices could signal the country was sliding into 1970s-style stagflation, in which growth slows while prices keep climbing.
Oil prices climbed to a record above $139 a barrel and a Morgan Stanley report predicted U.S crude prices could top $150 by the July 4 national holiday -- a development that would hit consumers hard at the gasoline pump.
But U.S. Treasury debt prices shot up as investors bet the weak jobs report pushed back any chance that the Federal Reserve might raise interest rates before November’s presidential election.
It added to discomfort at the White House, where spokesman Scott Stanzel said the unemployment rate was “too high for our liking,” though he noted it stemmed partly from more job-seekers and “not from a broad increase in lay-offs.”
The number of people in the work force climbed by 577,000 in May, up sharply from an increase of 173,000 in April. There typically is a rise in the number of young people seeking temporary work when school is out, the department said.
Tig Gilliam, head of staffing company Adecco SA’s U.S. operations, said more people appeared to be seeking work as high food and gasoline prices crimped their budgets.
“We do see more and more candidates because of gas prices and their inability to easily relocate; they’re looking for work, but frankly they need something close to home,” he said.
The surge of job seekers may have introduced “serious distortion” into the monthly data, said Alan Ruskin, chief international strategist at RBS Global Banking in Greenwich, Connecticut.
“The odds ... favor a dip in the unemployment rate to 5.3 or 5.4 (percent) next month, which would look to be more in keeping with trend rather than the unusually low rate prior to this month, or the spike that has followed,” he added.
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.
The unemployment rate and the number of jobs added or lost each month are based on separate surveys, so it is possible for the rate to rise or fall disproportionately with respect to the change in the number of workers on payrolls.
Paul Ashworth, senior US. economist with London-based Capital Economics, noted that the pace at which jobs were being lost has actually slowed. In the first three months this year, job losses averaged about 83,000 monthly, but in April and May, the pace slowed to 38,500.
“Let’s be clear: the economy is still very weak,” Ashworth said. “The economy has little forward momentum, employment is shrinking and the unemployment rate could reach 6 percent by the end of the year.”
There were substantial job losses last month 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.
One of the few bright spots was in education and health services, with 54,000 more jobs added in May, on top of 61,000 in April.
Additional reporting by Nick Zieminski and Chris Reese in New York, Editing by Dan Grebler