Good News, Bad News

The U.S. economy was buoyed by a stronger-than-expected employment report in May, but some analysts held out little reason to hope the economy was ready for a quick turnaround.

For the first time in eight months, the nation's unemployment rate improved slightly, dipping to 4.4 percent last month. But factory workers suffered a 10th consecutive cut in jobs.

May's unemployment rate was down 0.1 percentage point from April's two-and-a-half-year high of 4.5 percent, the Labor Department said Friday. The decline surprised analysts but did not boost optimism that the worst economic days are over.

"Although the unemployment rate looks good, in fact the unemployment rate went down because people were dropping out of the labor force and not looking for work and therefore not being counted as unemployed," said economist Bill Cheney.

Though fewer people seeking jobs were out of work last month, businesses overall cut 19,000 jobs, following an even bigger reduction of 182,000 workers in April. The April cut was the biggest since the country struggled to pull out of recession a decade ago.

Manufacturing companies shed 124,000 jobs last month, the largest payroll reduction so far in that sector.

Since July, 675,000 factory workers have been laid off, reports CBS News Business Correspondent Anthony Mason.

One reason is slumping sales: Ford said sales plunged 12 percent last month, while Chrysler was off 8 percent.

Manufacturing "still does not appear to have hit bottom," said Dean Baker, an economist at the Center for Economic and Policy Research. "But equally important is the fact that there is very little strength elsewhere to offset this weakness."

The National Association of Purchasing Management said Friday that its factory index continued to show recession conditions in manufacturing with a reading of 42.1 in May, down from 43.2 in April. Any reading below 50 is an indication that manufacturing is contracting.

Labor Secretary Elaine Chao said the country still needed a lift from the $1.35 trillion, 10-year tax cut that President Bush is to sign into law next week. The government will be mailing out tax rebate checks of up to $600 per family starting next month.

Private economists agreed that the jobless rate will resume rising in the months ahead. Bruce Steinberg, Merrill Lynch chief economist, predicted the unemployment rate will hit 5 percent by the end of the year.

The new unemployment report had bright spots, however. The 19,000 job losses reflected a rebound in hiring in the vast service sector o the economy, where 70,000 new jobs were created last month. Those new jobs were in education, health, social services and agriculture.

The finance and real estate industries also posted noteworthy growth, likely reflecting increased refinancing activity spurred by lower mortgage interest rates and a strong housing market.

Construction jobs rose by 31,000 last month after a big decline of 78,000 in April that was blamed on severe weather.

"I guess what we've got here is a tug-of-war. This weakness in manufacturing: will it be so strong that it brings down the other two sectors?" said Stephen Slyfer, a Lehman Brothers economist.

In a third report, the Commerce Department said construction spending went up in April for the sixth month in a row, rising 0.3 percent to a seasonally adjusted record annual rate of $855.2 billion.

That's after an even bigger 1.1 percent March increase.
meet at the end of this month, but he said the rate cut may be just a quarter-point move instead of the previous five half-point reductions.

Many economists predict the Federal Reserve will trim interest rates for a sixth time when it meets at the end of the month, though the cut could be just a quarter-point instead of the previous five reductions of a half-point each.

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