WASHINGTON -- The unexpected jump in the jobless rate to 7.5% from 7.2% renewed speculation in the bond market Friday that Federal Reserve officials may be forced to trim short-term interest rates again, especially if the money supply does not pick up soon.

But many analysts felt the Fed would wait for further signs before taking any action.

"I think the Fed is going to take a middle of the road, wait-and-see attitude," said Carol Stone, an economist with Nomura Securities International Inc. "If anything, hopes for a Fed easing have been rekindled by this report."

Analysts at Merrill Lynch told clients: "The door to another Fed easing opened wider last week, although policy will be steady over the near term. The lack of broad-based job growth, the rise in the unemployment rate, and another decline in M2 reflect the vulnerability of the recovery and put the Fed under great political pressure to ease policy again."

Last week the Fed reported that the M2 measure of money dropped $10.7 billion, marking a paltry annual rate of increase of only 1.6% and well below the targeted growth range of 2.5% to 6.5% set by policy-makers.

"The money numbers are signaling that the economy is not performing normally and may be losing momentum in much the same way it did last year," said Lacy Hunt, chief U.S. economist for HSBC Holdings.

The Labor report's household survey showed an additional 330,000 people were looking for work last month while the number of jobs fell by 19,000. The combination of a surging work force and no appreciable gain in jobs boosted the unemployment rate to the highest level since August 1984.

The high jobless rate of 7.5% puts Fed officials in an awkward position because they reportedly opted to take a neutral stance on rates at the May 19 meeting of the Federal Open Market Committee. In his news conference last week, President Bush expressed confidence that an improving economy will eventually lift his standing in public opinion polls.

Some parts of the employment report were encouraging as far as the economy is concerned, analysts said. The average workweek rose to 34.5 hours, and average hourly earnings rose 0.3% to $10.56.

The manufacturing workweek advanced to 41.3 hours, the highest level since October 1966, and factory overtime rose to four hours, the highest level since April 1973. Analysts predicted that industrial output may be up around 0.5% in May when the Fed issues its monthly report.

But other parts of the report looked unimpressive. The Labor survey of non-farm payrolls showed a modest increase of 68,000, which was less than expected. Moreover, since hitting a low in January, non-farm payrolls in the subsequent four months were up a total of only 350,000, or less than 90,000 per month.

Moreover, the new jobs that were offered last month were concentrated in only business services and health. Retail employment fell 44,000 and has shown no clear improvement since January, officials said, and manufacturing showed little change.

"The key question is whether the Fed is going to be happy with growth of between 1.5% and 2.5%," said Kathleen Camilli, chief economist for MFR Capital Consultants Inc. "If there's any chance of the economy faltering before the fall, the Fed is going to want to buy some insurance before the election."

Mr. Hunt said most of the job gains since the beginning of the year have been low-paying and concentrated in only a few areas including government. "I think the Fed is misreading the economy," he added. "We've had a string of statements from officials that the economy is doing fine, and it's psychologically difficult to admit now things are not going as well as expected."

Many economists calculate that second quarter growth will be slower than the 2.4% recorded in the first quarter. They are especially watchful of inventories, which seem to have risen again and added to growth while final sales have weakened.

"The risks are all on the down-side," said Lyle Gramley, chief economist for the Mortgage Bankers Association, who is looking for housing starts to be down in the current quarter. The main question is whether demand for goods and services will revive in subsequent months and add to production, he said.

But, Mr. Gramley added, "if M2 continues to go south in a big way in the next two weeks, then the Fed may have to rethink things."

Stuart Hoffman, chief economist for Pittsburgh National Bank, said he continues to expect Fed officials will move eventually to trim the federal funds rate to 3.50% from 3.75%. Still, he added, "I think we're virtually at the bottom of the short-term rate cycle."

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