US unemployment rose to a nearly nine-year high of 6.1 percent last month, but newly revamped payrolls data out on Friday showed companies cut fewer workers than feared, spurring hopes for faster economic growth.
Payrolls fell a mild 17,000 in the month -- in contrast to expectations they would drop by 39,000. No workers were cut from payrolls in April, the US Department of Labor said, in a revision from the 48,000 drop it initially reported.
"The bad news appears to be getting less bad each month," said Bill Cheney, chief economist at John Hancock Financial Services in Boston. "With other economic indicators showing gradual but steady improvement, we may not be that far from seeing positive job growth again."
Stocks got an early lift from the jobs numbers but later turned mixed. The Dow Jones industrial average rose 21 points to end at 9,063 while the technology-laden NASDAQ fell 19 points to 1,627.
Bond prices slipped as traders scaled back expectations for a big rate cut at the next US Federal Reserve policy-making meeting on June 24 to 25.
Although a majority of analysts believe the central bank will still cut rates, most now bet on a quarter-point cut rather than the half-point move the Fed might have deemed necessary had the data been gloomier.
A poll of the top bond dealers who trade directly with the Fed found 18 out of 19 are calling for a cut in interest rates at the central bank's June policy meeting.
The survey, taken on Friday, found 11 bond dealers expect a quarter-point cut and seven see a half-point move.
The jobs report included a major overhaul of the way the government collects and calculates payrolls data and these revisions, on balance, depicted a stabilizing labor market.
The unemployment rate inched up one-tenth of a percentage point from April's 6 percent to its highest level since July 1994. The rate was unaffected by the revisions because it is calculated from a survey of households separate from the poll of businesses used for the payroll data.
The job trends gave some weight to the argument that anxiety ahead of the Iraq war was a major factor dragging on the economy. At the height of prewar uncertainty in February and March, payrolls were falling at an average rate of 136,000 but the losses all but tapered off in April and last month.
In a further encouraging sign, Federal Reserve data showed consumer borrowing for items like cars jumped in April. Consumer credit outstanding grew by an unexpectedly large US$10.7 billion in the month where analysts polled had expected credit to increase by only US$1.9 billion.
Fed Chairman Alan Greenspan on Tuesday signaled willingness to cut rates if needed when he said lower borrowing costs could be an inexpensive "insurance" against the potential for sliding prices.
Among Fed officials, Greenspan has been in the optimistic camp that believes the recent lackluster economic growth would give way to a rebound now that the war in Iraq is over.
But he was cautious on Tuesday, saying it is "too early to get any real fix on the American economy in the period ahead."
Although Wall Street focused on the apparent stabilization in job trends as a hopeful sign, some economists felt the data was still fairly bleak.
"It's possible that over the rest of the year or so, we will see a few new jobs created," said Lawrence Mishel, president of the Economic Policy Institute think tank.
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