Monthly growth in unemployment rate is biggest in over 20 years

WASHINGTON – The nation’s unemployment rate took a sharp turn for the worse in May, jumping to 5.5% from 5% a month earlier – the largest one-month increase in more than two decades and a further sign that the ailing economy is not yet on the mend.

Altogether, the economy lost 49,000 jobs in May and 324,000 jobs since the beginning of the year – five straight months of contraction, the Bureau of Labor Statistics reported today. The economy must create about 100,000 jobs a month just to keep pace with population growth.

Peter Morici, an economist at the University of Maryland, said the report was “the strongest evidence yet that the economic expansion has slipped into a recession of uncertain depth and duration.”

“The situation is even worse than this jump indicates,” Morici said. “A large number of adults have left the labor force in recent years. Factoring in the decline in the number of adults participating in the labor force, the unemployment rate is closer to 7%.”

Joshua Shapiro, chief U.S. economist at forecasting firm MFR Inc., in New York, said the unemployment rate may have been affected by graduation season.

“These figures should be taken with a grain of salt, as school-leavers probably skewed them this month,” Shapiro said in a note to subscribers.

But Brian Bethune, an economist with forecasting firm Global Insight in Lexington, Mass., said the unemployment rate tends to lag behind the payroll report, which has been sliding steadily downward since the winter.

“We had been expecting that the shoe would drop there,” Bethune said.

Despite some improved stability on the stock markets and in the financial sector in recent months, most economists believe the country is now in a recession and that job losses are likely to increase.

Although many people informally use economic growth as an indicator of recession, the National Bureau of Economic Research, which officially names recessions in retrospect, is likely to put greater weight this time on payrolls and hours worked than on GDP, Bethune said.

“At this point, if you look at the string of declines in employment, we’re in a borderline recession situation by any standard,” Bethune said. “It winds up becoming a technical issue.”

Christine L. Owens, executive director of the National Employment Law Project, said the report indicates that Congress needs to act soon to expand unemployment benefits.

“The report that employers shed another 49,000 jobs in May, coming the same week major employers like United Airlines, Continental and General Motors announced plans for thousands more job cuts this year, only underscores the profound weakness of the economy for job seekers,” Owen said.

Democrats are hoping to make the state of the economy a prime issue in this year’s presidential election

“This is the biggest single-month surge in unemployment since 1986 and along with the last five months of job losses, it should put the economy front and center on the White House’s agenda,” said Sen. Charles E. Schumer (D-N.Y.), chairman of Congress’ Joint Economic Committee. “Numbers like these insure that the economy will be the No. 1 issue in the presidential campaign.”

In brief remarks while swearing in a new secretary of Housing and Urban Development, President Bush acknowledged that “this is a time of turbulence in the housing market and slow growth for the economy” and expressed optimism that tax rebate checks being sent to taxpayers may give the economy a boost.

 maura.reynolds@latimes.com