Spike in joblessness is unsettling but impact is likely short lived

The surprise jump in May's unemployment rate to 5.5% from 5% is in line with our perception of the softening of the US economy rather than a signal of a lurch towards recession, according to Cory Gilchrist, Manager of the Gartmore US Opportunities Fund and the Gartmore SICAV US Opportunities Fund.

"While it may have an impact on consumer psychology, we do not anticipate the affect to be long lasting or significant for consumer spending," says Cory. While unemployment is distressing for the individuals involved, we do not believe this surprise spike in unemployment will have a material impact on the broader economy.

Federal Reserve officials had expected the unemployment rate to be in the range of 5.5% to 5.7% by the end of 2008, according to their latest quarterly forecast prepared at the end of April. That the rate had been so slow to rise before May had caused them surprise. "It would appear that the joblessness rate reflects the increased difficulty in finding a job rather than significant job losses." Construction, industry and transport have borne the brunt of job cuts, while government and healthcare have seen growth in jobs.

Arguably, the continuing high price of oil is a more central preoccupation. Petrol prices have now gone above the psychologically important level of $4 a gallon. "While we have a residual concern that higher prices at the petrol pump will blunt the impact of the tax rebate cheques, we note that total sales at US retailers rose a full percentage point in May. This would indicate consumers are using at least some of the tax rebates to fund spending," commented Cory.