[ForexNews]

The May employment report showed a considerably smaller decline in jobs than expected, highlighting the slowing recession. Non-farm payrolls fell 345,000 in May, the smallest decline since September, and notably above the consensus forecast of -520,000. Adding to the positive surprise, there were net upward revisions of 82,000 to the prior two months. There was a broad-based moderation in the pace of job cuts with private payrolls down 338,000, compared to a decline of 596,000 in April. This was particularly notable in the service sector where only 120,000 jobs were cut compared with 230,000 in April and 340,000 in March. This is the smallest decline in service sector jobs since August of last year. The education and healthcare sector added 44,000 jobs while leisure and hospitality added 3,000 jobs, the first gain in the sector since December 2007.

The unemployment rate jumped to 9.4% from 8.9%, above consensus expectations for 9.2%. Part of the big surge in the unemployment rate is due to a 350,000 gain in the labor force, following a jump of 683,000 in April. Although it is encouraging that people are entering the labor force, many are finding it difficult to find employment. Indeed, 2.9mn workers went directly into unemployment after entering the labor force, only slightly below the record set last month.

Aggregate hours fell 0.7%, and are tracing a 7.6% q/q saar drop in Q2, a slowdown from the 8.9% decline in Q1. This implies a decline in Q2 GDP. The work week slipped to 33.1 from 33.2 as manufacturing fell to 39.3 from 39.5. Average hourly earnings increased 0.1%, translating to a 3.1% y/y gain, slowing a slowdown in wage appreciation.

Overall, today's report shows a notable slowing in the recession, consistent with the general tone of the recent data. Indeed, market expects the jobs recession to bottom in Q3 and payrolls to increase in the last few months of the year.