Washington: The US job market shows signs of coming back to life, according to a government report on June 7, but the tepid pace means the overall economy is still plodding its way out of recession.

The Labour Department said the economy added some 41,000 jobs in May as the unemployment rate declined two-tenths of a point to 5.8 per cent. It was the largest increase in non-farm payrolls since February 2001, and marks the second straight monthly increase after 12 consecutive monthly declines.

The unemployment rate was better than expected on Wall Street, although the number of job creations was less than many had hoped for, and economists said the figure was not strong enough to give a major boost to the economy.

Analysts say the economy cannot rev up without a boost for employment, which in turn boosts consumer spending. "The news was good, though not great", said Joel Naroff of Naroff Economic Advisors. "Payrolls are rising, but very slowly."

Anthony Karydakis of Bank One said, "The report is mildly disappointing. This represents a substantial improvement compared to five or six months ago, where the series was turning out sizable monthly declines."

"On the surface, it's the second month of employment gains, but gains are extremely modest," said Stephen Gallagher at Societe Generale.

"For the economy, the big news is that heavy job losses of late 2001 have come to an end. What is not materialising is job growth. The lack of job growth is not a surprise. Companies need to grow more confident in their profit prospects before taking on new employees. Before that occurs, more effort will be made to extract productivity, a process that enhances profits."

The report shows that the labour market is bottoming out, but it will take several months of sustained firming before the Federal Reserve will be comfortable in raising interest rates, analysts said.

"The modest back-to-back growth in payrolls over the past two months shows we're at the beginning of a comeback," said Wayne Ayers, Chief Economist at FleetBoston.

Bruce Steinberg of Merrill Lynch said the slow job growth simply reflects tightening at companies that will ultimately lead to improved profits, and in turn to job growth. "The continued softness of the labour market is a function of corporate restructuring and strong productivity gains," he said.

Others say the economy still faces risks, including the global tensions and domestic security woes that have hurt Wall Street and the dollar. "The recovery in the manufacturing and non-manufacturing sectors continues to gain momentum," said Scott Anderson of Wells Fargo Bank.

"However, the stock market has largely ignored the good economic news, and investor sentiment is currently poor. Stock investors are spooked, and these concerns have begun to weigh on the US Dollar. The danger is that the recent decline in the stock market and poor investor sentiment could soon translate into worsening consumer and business sentiment that would further constrain if not choke-off the economic recovery."