The American economy shed 345,000 jobs in May, and the unemployment rate spiked to 9.4 percent, but the losses were far smaller than anticipated, amplifying hopes of recovery.
The Takeaway With The Times's David Leonhardt 
Economists described the Labor Department’s monthly jobs report, released Friday, as an unambiguous sign of improvement, yet also clear evidence of broadening national distress, as millions of households grapple with joblessness and lost working hours.
The fact that a report showing the highest unemployment rate in more than a quarter-century was embraced optimistically testified to the stark fears over the economy in recent months.
“The free fall that the job market was in does finally appear to be tapering off,” said Stuart G. Hoffman, chief economist at PNC Financial Services Group in Pittsburgh. “It’s the prelude to an economic and job recovery later this year.”
Although stock markets shrugged off the report, interest rates on government debt surged, hitting their highest levels in six months, as investors bet that inflationary pressure would accompany any recovery.
The Obama administration pointed to the slowdown in job losses as proof that its $787 million package of spending measures was stimulating the economy.
“Today is a sign that we are making progress,” said Christina Romer, a White House economic adviser.
But experts emphasized that the slowing pace of deterioration did not alter the reality that the economy remained very weak.
“These are still terrible numbers,” said Ian Shepherdson, chief United States economist at High Frequency Economics. “We’re a million miles away from a recovery.”
Rather than a sign of renewed vigor, the May jobs report suggests merely the end of panic unleashed last fall, when the investment house Lehman Brothers crumbled, freezing credit through much of the economy.
“That wild disgorging of inventories and workers that we saw in the aftermath of Lehman, what you’re seeing is the reversal of that dynamic,” said Robert Barbera, chief economist at the research and trading firm ITG. “You had companies throughout the world that suddenly had serious concerns about access to capital, and they slashed spending and cut workers well beyond any connection to demand. There’s now a better tone to the data.”
But if primal fear has ended, comfort is nowhere to be found. Home prices appear to have hit bottom in some areas of the country, but construction remains weak. The auto industry and retailing remain in distress. The job market is likely to remain in the doldrums for many months, Mr. Barbera said.
A home foreclosure crisis is growing, thus far unchecked by an Obama administration program aimed at stemming the problem. As more foreclosed properties land on markets, real estate prices are falling further, adding to the losses and uncertainties confronting banks.
“That’s now the most significant threat to the economic recovery,” said Mark Zandi, chief economist at Moody’s Economy.com.
For more than a decade, economic growth and attendant American job opportunities were fueled by swelling wealth and liberal access to credit. As home prices soared, homeowners availed themselves of myriad forms of credit that turned increased real estate values into cash. They sprinkled those funds on an array of industries, generating jobs from auto factories and lumber mills to construction companies and restaurants.
Now, as paychecks disappear and home prices fall, people are increasingly inclined to save — a rough transition in a country in which consumer spending makes up roughly 70 percent of economic activity.
“People are not going to be moving forward based on housing wealth, and they’re not going to be taking on debt,” said Lawrence Mishel, president of the labor-oriented Economic Policy Institute in Washington. “They’ve got to get wage growth.”
Yet wage growth has been stagnating even as gasoline and medical costs rise, putting pressure on household finances. Average hourly wages were 3.1 percent higher last month than they were in May 2008, but the month-to-month increases in April and May were just 0.1 percent, to a seasonally adjusted $18.54, from $18.52, according to the Labor Department. Wages for manufacturing workers fell 0.1 percent.
The jobs report presented a statistical puzzle. After shedding an average of more than 700,000 jobs each month during the first quarter, the economy lost 504,000 jobs in April, according to revised data, and the number was smaller still in May. Yet the unemployment rate leapt from an already high 8.9 percent, reinforcing fears it would reach double digits.
This disconnect owes to the way in which the government collects data. The number of jobs comes from a survey of employers, while the unemployment data is derived from a survey of households. In April and May, the number of people who told surveyors they were actively looking for work increased by more than one million. These people would have previously been considered outside the work force and thus excluded from the unemployment calculation. Now, they are officially back in the hunt, yet struggling to secure work.
Manufacturers cut 156,000 jobs in May, with worse on the way: General Motors announced plans this week to close or idle 14 American plants, imperiling as many as 20,000 workers.
Construction jobs fell by 59,000, though that was a marked improvement from just a month ago, when employment in that industry sank by 108,000 jobs.
Professional and business services shed 51,000 jobs, though that represented a slower pace of losses than in recent months. Health care remained a rare bright spot, adding 23,500 jobs. Restaurants and bars added nearly 9,000 jobs.
The economy has lost six million jobs since the recession began in December 2007, and some economists anticipate two million more to come. Even after the economy resumes growth — perhaps later this year — businesses will probably be conservative, cognizant that credit is relatively tight, and consumers will be inclined to save. Instead of hiring full-time workers, many may rely on temporary employees or add hours for existing employees.
“The jobless rate is going to continue to rise,” said Bernard Baumohl, managing director of the Economic Outlook Group. “It’s a dismal job market. It’s going to remain awful easily for the balance of this year. Even when the economy begins to recover, we might be witnessing the mother of all jobless recoveries.”
That would keep the pressure on the seven million Americans who have been out of work for 15 weeks or longer.
Since losing his job as a legal courier in February, Dante Whitfield, 35, has been riding the bus around San Jose, Calif., in a futile quest for work, subsisting on unemployment checks and the Value Menu at McDonald’s.
“There’s days I come home in tears,” Mr. Whitfield said. “You just feel lost. You don’t know what to do.”
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