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Despite fewer cuts, May jobless rate seen rising

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[June 05, 2009]  WASHINGTON (AP) -- With companies in no mood to hire, the unemployment rate is still rising. But the furious pace of layoffs is easing as the recession loosens its hold on the country.

The Labor Department on Friday is slated to release a report expected to show that a net total of 520,000 jobs were lost in May. If economists are right, the figure would mark the second straight month that job losses slowed. It also would be the fewest job reductions since October.

"A loss of that many jobs is bad, but would be taken as a sign that the heavy weights on the economy and the labor market seem to be diminishing a bit," said Steven Cochrane, managing director of Moody's Economy.com.

The deepest job cuts of the recession came in January when 741,000 jobs disappeared, the most since 1949.

Water

Job losses averaged 700,000 a month in the first quarter but dropped to 539,000 in April. They should average around 500,000 in the current quarter and taper off to 250,000 per month in the final quarter of this year, according to some projections.

Even if job losses do let up, companies will be reluctant to hire until they feel certain any economic recovery will last. That's why economists predict the unemployment rate will climb to 9.2 percent in May, from 8.9 percent in April. If that happens, it would be the highest since September 1983, when the U.S. was recovering from a severe recession that had driven unemployment past 10 percent.

As the recession -- which started in December 2007 and is now the longest since World War II -- bites into sales and profits, companies have turned to layoffs and other cost-cutting measures to survive the fallout. Those include holding down workers' hours and freezing or cutting pay.

Federal Reserve Chairman Ben Bernanke repeated his prediction this week that the recession will end this year, but again warned that any recovery will be gradual.

Many economists believe the jobless rate will hit 10 percent by the end of this year. Some think it could rise as high as 10.7 percent by the second quarter of next year before it starts to make a slow descent. The post-World War II high was 10.8 percent at the end of 1982.

The Fed says unemployment will remain elevated into 2011 given the expectation of tepid recovery. Economists say the job market may not get back to normal -- meaning a 5 percent unemployment rate -- until 2013. Economic recoveries after financial crises tend to be slower, economists say.

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Evidence has been mounting that the recession is letting up, with fresh signs emerging earlier this week.

The number of people continuing to draw unemployment benefits dipped for the first time in 20 weeks, and first-time claims also fell. Manufacturing's slide is slowing. Builders are boosting spending on construction projects and a barometer of home sales firmed.

Although shoppers remain cautious according to sales results from major retailers, Bernanke and other economists are hopeful that consumers won't return to the deep hibernation seen at the end of last year.

That's when the recession hit with brutal force, causing the economy to contract at a 6.3 percent pace, the most in 25 years. Consumers cut their spending at the time by the most in nearly three decades. Economic activity shrank at a 5.7 percent pace in the first three months of this year, despite a rebound by consumers.

Many analysts believe the economy is shrinking at about a 2 percent pace in the current quarter, and that the economy could return to growth as soon as the third quarter.

Misc

Ripple-effects from General Motors Corp.'s filing for bankruptcy protection -- the fourth largest in U.S. history -- could muddy the outlook, some analysts said. GM said earlier this week it will close nine factories and idle three others indefinitely as part of its restructuring. The closings, which will take place through the end of 2010, will cost up to 20,000 workers their jobs.

[Associated Press; By JEANNINE AVERSA]

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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