US jobless rate hits nine-year high

The US jobless rate hit its highest level for nine years in May, official figures showed today. However, Wall Street took heart from the fact that the job losses were smaller than had been anticipated.

Last month's jobless rate rose 0.1% to 6.1%, the labour department said - the highest level since April 1994, when it reached 6.4%. One reason for the increase was that more people resumed job searches but failed to find work. Almost 9 million people were unemployed in May.

The number of jobs lost last month was less than expected. 17,000 jobs disappeared in May, following a revision in April in which no jobs were lost. Economists had expected May's job losses to be at least 30,000.

Investors chose to accentuate the positive, sending the Dow Jones industrial average surging 150.9 points, or 1.6%, to 9,192.2. In another encouraging sign, temporary jobs rose to 58,000, a sign that companies may begin to hire permanent, full-time workers.

The US jobless rate has remained stubbornly high because the economy has failed to bounce back strongly from the 2001 recession. The fragility of the US economy remains President George Bush's Achilles heel as Democrats and Republicans gear up for next year's presidential election.

The world's largest economy has been growing, but not vigorously enough to absorb new workers coming into the job market. Some economists predict that the jobless rate will climb to as much as 6.5% before the economy begins to pick up substantially.

The US economy grew at a 1.9% annual rate in the first quarter, faster than the 1.6% rate initially estimated. But even with the improvement, the pace of growth was weaker than normal and not enough to generate new jobs.

In the three months from February through to April alone, the US shed more than 500,000 jobs, prompting economists to describe the current situation as a "jobless recovery".

Economic growth needs to accelerate to at least 3% to reduce unemployment, which currently stands at an eight-year high of 6%, some economists estimate. GDP increased by an average 3.6% per year during the country's record expansion between 1992 and 2000.

Despite the bounce on Wall Street, analysts still harboured doubts about the US's economic rebound and called for the US Federal Reserve to cut interest rates, despite their record low of 1.25%.

"Jobs in the US are still declining, and have fallen, in total, by 2.5 million since February 2001," said Angus McCrone, senior economist at the Centre for Economics and Business Research.

"Despite the end of the Iraq war, there has not yet been a sharp response from economic activity. A few confidence surveys and a springtime stock market rally are not enough to produce economic resurgence for the US ... There remains a strong case for the Federal Reserve to cut interest rates on June 25."