Economists Cool To Jobless Drop

The nation's unemployment rate edged down to 5.8 percent in May — the first drop in three months — as companies added 41,000 new jobs, but CBS MarketWatch chief economist Irwin Kellner isn't impressed.

"I suspect that had to do with fewer people looking for work as opposed to any fundamental turn in the unemployment rate," he said.

"Obviously, any time the unemployment rate falls it's good news," added Kellner. "Five-point-eight percent is still much higher than it was at its low point a year or more ago, but it's better than going in the other direction."

The Labor Department reported Friday that the rate fell 0.2 percentage point last month from an eight-year high of 6.0 percent in April. Economists had predicted the May rate would edge up to 6.1 percent.

The long-term jobless figures — people unemployed for 27 weeks or longer — now total 1.6 million, which is 20 percent of the overall number of people out of work, and that 20 percent is twice the percentage that it was a year ago, points out Kellner.

"The little tickdown in the jobless number is a little surprising but the raw job creation number is not exciting," said Carl Tannenbaum, chief economist at LaSalle Bank in Chicago.

Although the economy is emerging from last year's recession, the job market has been unable to support the number of people looking for work, causing the unemployment rate to hover near 6.0 percent for months.

"The unemployment rate may be down but for those people without a job, things are still not all that bright," said Kellner.

Economists say companies are worried about the recovery's staying power and are reluctant to quickly hire back workers, crank up spending and make other big commitments until they are convinced the turnaround is for real.

Against such a backdrop of sluggish job growth, economists predict the unemployment rate will climb as high as 6.5 percent this summer.

Some hints the job market might be starting to pick up steam emerged on Thursday when a separate report from the Labor Department showed new claims for jobless benefits fell last week to their the lowest level in more than a year.

Initial jobless claims dropped to 383,000 in the June 1 week, from a revised 415,000 in the prior week.

Citing uncertainties about the vitality of the unfolding recovery, the Federal Reserve has left short-term interest rates unchanged at 40-year lows.

The specter of rising unemployment and a belief that consumers won't have a lot of pent-up demand coming out of the recession were factors in the Fed policy-makers' decision to hold rates steady. Many economists predict the Fed will leave rates unchanged through the summer.

Low rates might motivate consumers, whose spending accounts for two-thirds of all economic activity in the United States, to keep on spending and businesses to step up investment. That eventually would trickle down to the jobs market.

In Friday's report, the number of people in the labor force was little changed in May at 142.8 million.

Employment in the services industry — normally the engine of job creation in the country — increased by 68,000 last month following similar gains in the previous two months.

Hiring at temporary employment firms has contributed to the increase of services jobs. Those firms added 25,000 jobs in May for a gain of 126,000 since February. The industry lost 806,000 jobs from September 2000 through February 2002.

Economists are watching hiring at such firms because companies often tap temporary workers before they take on new full-time employees or rehire laid-off workers.

Engineering and management services added 23,000 jobs in May - mostly in management and public relations.

In retail, job losses in restaurants and bars totaled 33,000. Employment was unchanged in transportation and public utilities following losses of 347,000 since February 2001.

In government, employment in local education increased by 26,000 — which helped offset job losses in state government.

Manufacturing companies — which have been battered for more than a year — cut 19,000 jobs last month. But losses have moderated substantially since the beginning of the year. Employment had declined by an average of 115,000 a month from March 2001 through January 2002.