• The sharper than expected moderation in the rate of job losses suggests that the US economy is closer to an actual recovery than previously thought. Non-farm payrolls fell by an eight-month low of 345,000 in May, down from 504,000 in April.

• That decline was well below the consensus forecast of a 520,000 fall. Moreover, for the first time in quite a while, the declines in previous months were actually revised down rather than up, by a total of 82,000.

• The improvement in May had nothing to do with the hiring of more government workers for the 2010 census either. Public sector employment actually fell by 7,000, after a 92,000 surge in April. Instead, the improvement was all in the private sector, this shed 338,000 net jobs last month, not far from half the 596,000 lost in April.

• There was also a big moderation in the number of temporary jobs being lost to 7,000 in May, from 55,000. This is arguably the most encouraging part of the whole report because temporary employment has historically been a leading indicator of permanent employment. The decline in temporary employment last month was the smallest since the recession began in late 2007 and suggests that a rebound in overall payrolls may not be that far off.

• Nevertheless, not all the news was good. The unemployment rate jumped to a 25-year High of 9.4%, from 8.9%. However, that surge was as much due to people returning to the active labor force as it was to job losses.

• Overall, this report adds to the evidence that the economy is getting back to where it was before the financial crisis intensified last September. Jobs are still being lost at an unusually high rate, suggesting that the economy remains in recession. Nevertheless, if the rate of improvement in the recent data continues, output (and possibly employment too) could begin to expand again in the second half of the year.