The U.S. jobless rate rose to 6.1% in May up from 6% in April. That’s the highest that gauge has been since July 1994, although the number was in line with analyst expectations.

Non-farm business payrolls declined 17,000 in May after holding steady in April, the Labor Department said.

It attributed the decline in payrolls mostly to cuts in the manufacturing industry, which trimmed 53,000 jobs. The industry has lost 2.6 million jobs since July 2000.

The services-producing industry added 12,000 jobs, barely a fifth of the jobs created in the industry in April. Retail trade jobs declined by 14,000. The construction industry added 26,000 jobs, marking the third consecutive month of gains.

“Manufacturers continued to bleed positions in May, shedding 53,000 in the month. The losses were widespread in both durable and nondurable goods, and were led by continued weakness in the computing industry,” said Bank of Montreal.

“The report suggests that the U.S. labour market remains weak even after the Iraqi war. However, to the extent that recent job losses are not as large as earlier in the year, one could say that conditions have improved post war,” BMO says. “As a result, the report was interpreted by investors in a favorable light.”

CIBC World Markets says, “Markets judged the overall report as not as bad as anticipated, but this was hardly a good news picture of the U.S. economy. Not only is the economy shedding jobs more than five quarters into a “recovery”, but the unemployment rate is rising (to 6.1%), the average workweek is a light 33.7 hours, and total hours worked were only flat in the month. Manufacturing hours fell 0.2%, pointing to a roughly stagnant month for industrial production.”

“The U.S. economy is not creating jobs at a pace sufficient to convince some observers that the recovery is self-sustaining,” notes RBC. “Lower interest rates have encouraged consumers to keep spending but have yet to entice firms to begin hiring for the next up-trend in the business cycle.”

CIBC says that, “We see this report as fully consistent with the Fed delivering quarter point ‘insurance’ rate cuts at each of the next two FOMC meetings.”

However, BMO says, “The May jobs report is a double-edged sword for Fed policymakers: it is not weak enough to warrant a rate reduction yet not strong enough to rule one out. At the moment, we still lean towards steady policy at the June 24/25 meeting. However, the release of softer data in coming weeks for example, a further drop in core CPI inflation in May could spur a rate reduction.”