By Josh Mitchell 

The U.S. jobless rate fell to 13.3% and employers added 2.5 million jobs in May, early signs the labor market is mending as the economy started to reopen following lockdowns related to the coronavirus pandemic.

Employment rose sharply across industries, including leisure and hospitality, construction, education and health services, and retail, the Labor Department said.

"These improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic and efforts to contain it," the department said Friday in a release.

The jobless rate fell from 14.7% a month earlier, which was the highest on records dating from 1948. A broader measure of unemployment -- which includes part-time workers and those who gave up looking for jobs -- fell to 21.2% from 22.8% a month earlier.

The economy had lost 22.1 million jobs combined in March and April when states and localities ordered many businesses to shut down to combat the spread of the virus. In May, with some areas starting to reopen, some businesses rehired workers.

"The bounceback started earlier than most expected, but don't get too excited about this one month of data," Nick Bunker, economist for hiring website Indeed, said in a note. "It's not clear how enduring this will be."

Despite the gains last month, the jobless rate is still exceptionally high, and 21 million workers remained unemployed.

Other data suggest the labor market stabilized in recent weeks, though it likely suffered another setback from riots and looting after George Floyd was killed in police custody May 25 in Minneapolis.

Friday's report showed the unemployment rate was uneven across racial groups.

The unemployment rate for African-Americans rose by 0.1 percentage point in May to 16.8%. The rate for Asians increased to 15% from 14.5% in April. The rate for Latinos was 17.6% in May, down 1.3 percent points from April's record high. The rate for white workers fell 1.8 percentage points in May to 12.4%

The jobless rate fell for both women and men, but the rate for women was higher, 14.5% versus 12.2% for men. In February, before the economic shock due to the pandemic began, the unemployment rate was slightly lower for women, 3.4% compared with 3.6% for men.

Of those unemployed due to job loss, 84% reported themselves as on a temporary layoff, meaning they expect to return to their prior employer within six months. While that is historically high, the share is down slightly from 88% in April.

Some industries that were the quickest to lay off workers in March added many of those workers back in May.

Penn Quarter Sports Tavern in Washington, D.C., laid off all 28 employees in early March, after city leaders ordered nonessential businesses to close during the pandemic. When the city began the first phase of reopening last month, the restaurant rehired about half of his employees in the hopes of reopening the bar this week, said owner Mike Brand.

But protests and looting prompted him to board up his business and delay the opening by at least a week.

"We had every intention to be operating right now but now we're back stuck in the mud," Mr. Brand said. "This extra week, maybe two with the riots, it's taking a huge financial chunk."

He said he has been trying to rehire more of his former employers, but he has run into a hurdle. Many of his servers and bartenders have declined offers to come back to work, he said. Some are fearful of catching the virus; others don't want to give up their unemployment benefits, which currently pays them more than they would earn at the restaurant. He believes that as enhanced unemployment benefits expire he will have an easier time finding workers.

Research confirms that the typical worker on unemployment is earning more on unemployment than he or she had been at work, due to enhanced benefits and stimulus money provided by Congress, said Becky Frankiewicz, president of ManpowerGroup North America, a job-placement company.

The Congressional Budget Office, in a Thursday letter to members of Congress, said it estimated expanding enhanced jobless benefits through January 2021 would mean five in every six claimants would make more money from unemployment insurance than from work. The program pays workers an extra $600 a week and is currently set to expire in July. Lawmakers are debating whether to extend it as part of a new stimulus bill.

Those benefits are a big reason that, despite, the widespread job loss, many economists believe the economy will rebound late this year and many jobs will be recovered. Forecasting firm Moody's Analytics projects the unemployment rate will fall to 8.5% by year-end and that the annual job loss will settle at 8 million.

Ms. Frankiewicz said there is a hopeful sign the labor market has turned a corner: Industry data her company analyzed showed job postings rose in the past week by 10%. "As states start to reopen we're seeing an increase in demand," she said. "When will we be back? We got here overnight. We won't return overnight."

One big uncertainty is just how long some businesses will be able to hold on, given that any recovery is likely to be painfully slow. For example, many restaurants that are reopening are operating at a much smaller capacity to comply with social distancing rules. In D.C., those rules mean Mr. Brand's tavern will only be able to seat people outdoors.

In Portland, Ore., Kate Rafter had spent five weeks on a furlough when she returned to work the first week of May at a nonprofit that takes children on field trips around the Pacific Northwest. Two days after she returned, her boss told her she was being laid off. Many parents had canceled plans to send their children on trips given the risk of catching the virus. The nonprofit said it could no longer afford to keep Ms. Rafter on as a business-systems analyst.

She had loved the job, which offered decent pay and great health benefits, and she had planned to move out of her parents home and into a new place of her own. Now, she is living off unemployment benefits and the stimulus check Congress provided to many households.

She is hopeful, though, because she has seen a number of job postings in her field. "I think I'll be able to find something," she said. She has spent recent weeks knitting hundreds of masks which she has donated, and decluttering her parents home.

Eric Morath contributed to this article.

Write to Josh Mitchell at joshua.mitchell@wsj.com

(END) Dow Jones Newswires

June 05, 2020 10:22 ET (14:22 GMT)

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