Unemployment Spike Largest Since '86

The U.S. economy shed jobs in May for the fifth month in a row and the nation's unemployment rate surged, according to a monthly employment report from the Labor Department released Friday.

The government said that nonfarm payrolls declined by 49,000 for the month, while the unemployment rate rose to 5.5% from the 5% reported for April. The spike in the unemployment rate is the biggest monthly jump since 1986.

Economists were expecting a steeper decline in nonfarm payrolls, with consensus estimates on Wall Street predicting a decline of 60,000. The unemployment rate, however, was worse than expected, with economists predicting an uptick to 5.1%.

Also, job losses in both March and April turned out to be larger than the government previously reported.

Layoffs are ramping up on Wall Street, where the fifth-largest U.S. investment bank, Bear Stearns, was sold in a fire sale to JPMorgan Chase (JPM Quote). Other firms like Merrill Lynch(MER Quote), Lehman Brothers (LEH Quote) and Citigroup (C Quote) have been downsizing amid steep losses on mortgage-related investments.

Some major airlines, like United Airlines (UAUA Quote) and Continental Airlines (CAL Quote), also recently announced big job cuts.

Stock market futures turned lower on the report as the data further confirmed suspicions that the U.S. economy is sliding into recession amid the nation's housing downturn and the financial crisis on Wall Street.

Average hourly earnings were a bright spot, rising by 5 cents, or 0.3%, for the month. But that increase could also stoke inflation fears amid soaring commodity prices and a weakened U.S. dollar. The average workweek was unchanged at 33.7 hours.