Unemployment surged from 5 percent to 5.5 percent last month - the biggest increase in 22 years - as businesses continued to lay off workers and curb their wage gains, the Labor Department reported Friday.
The dramatic increase in the politically sensitive unemployment rate rocked global markets, provoking a domino effect that started with a plunging dollar and ended with the biggest-ever gain in oil prices to a record $138.54 a barrel in New York trading. That breathtaking $10.75 rise in oil sent regular gas prices to $4 a gallon for the first time in the Washington area.
The toxic combination of soaring unemployment and oil prices, in turn, raised fears of recession and sent stocks plummeting, with the Dow Jones Industrial Average falling nearly 400 points to 12,210 - its worst loss in more than a year.
The economic news was "a shocker" for markets and consumers, said Bernard Baumohl, managing director of the Economic Outlook Group. The jobless rate was pushed up by a 861,000 jump in unemployment reported by households, while businesses reported another 49,000 job losses - all "horrific" numbers that "scream recession," he said.
Meanwhile, the surge in oil prices "is threatening the economy" and creating more hardship for American households, which have to foot a $4,000 average bill for gasoline this year while beset by job worries, credit problems and housing woes, said John Townsend of AAA MidAtlantic. "It's frightening to think how high gas prices will go" with the latest surge in crude prices.
Oil prices should decline as the economy weakens and consumers cut back on gas purchases, but they keep on rising, he said.
"Crude oil is like this Frankenstein monster doing its own thing contrary to the rest of the economy. It's run amok," Mr. Townsend said.
Job hunters were no less perturbed by the twin pressures of rising unemployment and soaring costs for housing, food and fuel.
The economy has lost 324,000 jobs since December, mostly in manufacturing, construction, retail and temporary work. The only consistently bright spots for job hunters have been health care, education, government and restaurant work.
But while the job picture has been darkening, it is not as bad as the "headline" figures in Friday's job report suggest, said Mr. Baumohl. Nearly all the job losses have been the result of the slump in housing, the mortgage mess and cutbacks in consumer spending at department stores and other retailers, he noted.
"We have seen far fewer layoffs outside these sectors because companies have been more judicious in their hiring practices the last several years," Mr. Baumohl said, noting that the lack of pervasive layoffs has resulted in "surprisingly modest" increases in unemployment insurance claims.
"The economy is very weak, perhaps even in recession, but it is not falling off a cliff, as these numbers first suggest," he said.
A less-threatening job scenario was seen in a recent survey by Dice Holdings Inc., which provides job Web sites for professionals. It found that about half of employers planned to scale back hiring and the rest planned no changes.
"We´re seeing a mixed and uncertain hiring environment," said Dice President Scot Melland. "Roughly half of employers are sticking with their hiring plans, but with a degree of caution and hesitancy you might expect, given the lukewarm economy. At the same time, the majority of companies do not appear to be forecasting a dire turn for the worse anytime soon."
Stephen Stanley, economist with RBS Greenwich Capital, said the job losses in April and May were half the 82,000 average posted during the first three months of the year, suggesting a modest improvement in the job market despite the "jolting headline."
The huge rise in unemployment appears to be an aberration caused by an early start in job hunting by high school students looking for summertime work - an event that usually occurs in June, he said.
A jump in teenage unemployment to 18.7 percent from 15.4 percent in April accounted for nearly half the rise in unemployment, he said.
Mr. Stanley expects the jobless rate to fall back to 5.3 percent in June - still up substantially from the low during this business cycle of 4.4 percent reached in March 2007.