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Friday, 3 June, 2005, 13:44 GMT 14:44 UK

Sharp slowdown in US job growth

US BMW factory The US economy has recorded the smallest rise in employment in 21 months during May, new figures show.

Just 78,000 people entered the workforce that month, the Department of Labor said - far fewer than the 185,000 predicted by analysts.

Construction and health care firms added the most workers, taking on 20,000 and 26,000 staff respectively.

However, the unemployment rate fell to 5.1% from 5.2% in April, its lowest level since September 2001.

'Soft patch'

The US economy needs to create at least 150,000 jobs every month in order to keep pace with population growth, economists have estimated.

"Payroll employment continued to grow over the month in healthcare and construction, but was little changed in the other major industry sectors," the Labor Department said.

"This is more reason for the Federal Reserve to be close to the end of raising rates"
Robert MacIntosh, economist Eaton Vance Management

The figures were the lowest for "non-farm" hiring since August 2003, and has led to fears of an economic slowdown.

Factory payrolls contracted by 7,000 jobs in May, a third straight monthly decline, and the leisure sector lost 6,000 posts.

"The concern here is whether the soft patch is going to extend beyond that April-May period," said Marc Pado, US market strategist at Cantor Fitzgerald.

"It would have been more of a negative if the number had been higher than expected."

Rates issue

Although the figures have raised fears about the economy, they should mean that the US Federal Reserve is less likely to consider further interest rate rises in the near future.

At the beginning of May, the Fed raised interest rates a quarter of a percentage point to 3%, after the payroll surge of 274,000 jobs in April.

Commenting on the weak figures for May, Robert MacIntosh - chief economist for Eaton Vance Management in Boston - said: "This is more reason for the Federal Reserve to be close to the end of raising rates."

The unemployment rate is calculated on the basis of a survey of 60,000 households.




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