The hefty labor market collapse of the 2008 fourth quarter and 2009 first quarter makes the emerging second-quarter declines look comforting in comparison. We expect the Labor Dept.'s U.S. employment report for May, scheduled for release on June 5, to show a drop of 500,000 in nonfarm payrolls-the best reading for payrolls since October.

Of course, "best" is relative, as the May figures should still reflect a sizable pace of labor market deterioration. The projected decline would still sharply exceed the 325,000 payroll drop in September 2001, which marked the worst reading of the 2001 recession amid the immediate impact of the September 11 terrorist attacks.

In addition, the jobless rate is expected to rise to 9.2% in May from 8.9% in April, which would mark the highest unemployment rate since September 1983. We expect the rate to reach 10% by August and 10.4% by yearend, with risk of challenging the 10.8% post-World War II high from November 1982.

The average workweek is expected to hold at 33.2 hours, while average hourly earnings are expected to increase 0.2%.

Since September, we have seen a broad contraction in the level of payrolls across all major industries except Education & Health, which has posted average monthly job growth of 27,000 per month over the period. The one notable exception in April was Government, where federal government employment swelled by 66,000, mainly because of hiring temporary workers in preparation for Census 2010.

Overall, the risk is for an industry breakdown similar to April. Education & Health and Government should post gains, while most other industries should show continuing attrition, even if the pace of job losses appears to be diminishing.

Continuing claims are continuing to set new all-time highs by the week, as these figures historically continue to climb until job growth returns to the underlying growth pace for the labor force.

In total, the monthly payroll figures are poised in the months ahead to reveal a diminishing pace of decline relative to the steep drop seen in the 2008 fourth quarter and 2009 first quarter. But while diminishing weakness is good news, labor market fundamentals remain weak relative to prior recessions. The jobless rate should continue to rise through yearend, as payrolls continue to fall short of the typical 100,000-120,000 monthly labor force gain.
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