U.S. jobless rate hits 3-1/2-year high in May

The jobless rate rose to 5.5 percent last month from 5 percent, its highest level since October 2004, the Labor Department said on Friday. Some 49,000 jobs were cut from payrolls in May, the fifth straight month of job losses.Â

Wall Street economists surveyed by Reuters forecast that 58,000 jobs would be lost in May, but had foreseen the unemployment rate rising only to 5.1 percent. So far in 2008, job losses have totaled 324,000, the department said.

"The data definitely points to the fact that this economy is struggling to grow," said Owen Fitzpatrick, head of U.S. equity group at Deutsche Bank Private Wealth Management in New York.Â

The unemployment rate and the number of jobs added or lost each month are based on separate surveys, so it is possible for the rate to rise disproportionately to the amount of jobs lost.

The surprisingly high jobless rate shocked financial markets, causing prices for U.S. Treasury bonds to rise as investors bet the dismal employment outlook pushed back any possibility of early interest-rate rises from the Federal Reserve.

The dollar's value fell against other major currencies and stock futures dropped.  Â

The jump in the jobless rate reflected, in part, a surge of workers entering the work force.

The number of people in the work force climbed by 577,000 in May, up sharply from an increase of 173,000 in April. Department officials noted that in the period from April through July, there typically is an increase in the number of young people seeking temporary work when school is out.

Analysts said the higher unemployment rate was likely to further sap consumer optimism.

"We've seen consumer sentiment drop sharply in recent months and it does indicate that people are either losing their jobs or having a difficult time finding a job if they are looking for one or trying to enter the work force," said Gary Thayer, senior economist with Wachovia Securities in St. Louis, Missouri.

There were substantial job losses in May in construction industries where 34,000 cuts were made, in manufacturing where 26,000 jobs were lost, and among providers of professional services where 39,000 jobs were lost.