WASHINGTON (MarketWatch) -- The U.S. unemployment rate jumped by half a percentage point in May -- to 5.5%, the highest since October 2004 -- on the biggest increase in seasonally adjusted unemployment in 33 years, government data showed Friday.

Nonfarm payrolls fell by 49,000 last month, the Labor Department reported, marking the fifth consecutive decrease and in line with expectations of economists. See Economic Calendar.

It "looks a lot like a recession to us," wrote Joseph Brusuelas, chief economist for Merk Investments. Employment is one of the main indicators used to judge whether the economy is growing or contracting.

The economy has lost 324,000 jobs this year, according to the government's survey of some 400,000 work sites. Job losses in March and April were revised lower by 15,000.

Unemployment rose by 861,000 in May to a total of 8.5 million, according to a separate survey of about 60,000 households. It was the biggest one-month increase in unemployment since January 1975. Read the full government report.

The half-percentage-point increase in the jobless rate was a shock to economists, who expected a much smaller gain to 5.1%. It was the biggest percentage-point gain in unemployment since 1986.

The very weak report undercuts the argument put forth by some analysts who had said the economy wasn't in a recession because the unemployment rate had remained so low.

The employment participation rate rose to 66.2% from 66%, indicating that more people wanted jobs in the month. The employment-to-population ratio dipped to 62.6%, off from 62.7%.

However, the employment report is likely to have little impact on the Federal Open Market Committee, which meets in three weeks to set the policy interest-rate target.

Analysts expect no change in the FOMC's 2.0% federal funds target rate in the near future. Fed officials have said they believe the economy and the job market are likely to worsen in coming months before bouncing back by the end of the year.

Several economists said the report would probably keep the FOMC on hold for the rest of the year.

"This will take away the market's expectation of an increase or two by the end of the year," said Robert MacIntosh, chief economist at Eaton Vance, in an interview with MarketWatch Radio Network. Listen to the interview.

Some weakness, some improvement

In May, job losses were concentrated in construction, manufacturing, retail and temporary-help jobs. Construction jobs fell by 34,000, while factory jobs declined by 26,000, retail-sector positions contracted by 27,000 and temporary jobs dropped 30,000.

There were a few bright spots for hiring. Health care added 34,000 jobs, and government hired 17,000 additional workers.

Of the 274 industries tracked in the Labor Department survey, 45.4% were hiring in May. And of 84 manufacturing industries, 33.3% were hiring.

The average work week last month was unchanged at 33.7 hours. Total hours worked in the economy dropped by 0.1%.

Average hourly earnings rose 5 cents, or 0.3%, to $17.94. Average wages were up 3.5% in the past year, falling short of the increase in consumer prices.

After the tax rebates come and go, "consumers will have nothing left to fall back on," wrote Joshua Shapiro, chief economist for MFR Inc.

"The spike in the unemployment rate to 5.5% from 5.0% a month ago is like a tsunami hitting our economy," said Sen. Charles Schumer, D-N.Y., who again urged the White House to support an extension of unemployment benefits.

The number of people who've been out of work longer than 26 weeks rose by 197,000 to 1.55 million.

Statistical noise?

The government cautioned that the scope of the increase in the unemployment rate in May could be a statistical distortion. Month-to-month changes from April through July can be hard to adjust seasonally.

"There is a substantial flow of workers, particularly young workers, into the labor force during these months," said Phillip Rones, deputy commissioner of the Bureau of Labor Statistics.

The unemployment rate for teenagers surged to 18.7% from 15.4%, the largest increase since the data were first collected in 1948.

A broader measure of unemployment that includes so-called discouraged workers rose to 9.7% in May from 9.2%.