Page last updated at 14:49 GMT, Friday, 6 June 2008 15:49 UK

US unemployment rate reaches 5.5%

Jobseekers at a jobs fair in California
Payrolls have fallen for a fifth month

The US unemployment rate rose at its fastest pace in more than two decades in May, stoking fears of recession in the world's biggest economy.

The surprise jump in May's jobless rate to 5.5% from 5% is the most recent signal yet that US growth is stalling.

It shows US companies are more reluctant to hire as profits are squeezed by a consumer slowdown and soaring oil and raw material costs.

The US Labor Department said the economy lost 49,000 non-farm jobs.

If you want to avoid a protracted recession, you have to make sure inflation doesn't get out of control

Gilles Moec
Analyst, Bank of America

It follows a 28,000 decline in April, and will fuel fears the US economy is sliding towards recession, analysts said.

The worry is that a weak labour market will see consumers rein in their spending, hurting corporate profits.

The poor data rattled the stock market, with the blue-chip Dow Jones index sliding 1.79%, or 225.70 points, to 12378.75 in afternoon trade in New York.

Cost of living

In recent months, the US Federal Reserve has been slashing interest rates in an attempt to stoke growth.

But analysts believe the rising cost of living, rather than interest rates, should be the US central bank's chief concern now.

"If you want to avoid a protracted recession, you have to make sure inflation doesn't get out of control," said Gilles Moec, an analyst at Bank of America.

"Otherwise, you're going to have a loss of purchasing power meaning consumer spending is going to slow down even more."

Consumer spending is the engine of the US economy, and the latest jobless data is another set-back for Americans who are struggling with falling house prices, a credit squeeze and rising fuel bills.

Analysts said the figures came as a surprise:

"The unemployment rate is the shocker," said Bert Macintosh, chief economist at Eaton Vance Management.

"The unemployment rate gives you a much weaker economic outlook than the payrolls number," he added.

Analysts had expected between 30,000 and 58,000 jobs to go.

In April, 28,000 non-farm jobs were lost, fewer than expected.

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