Hopes of a turnaround in the job market dimmed in May as Orange County lost jobs on an annual basis for the second month in a row.

The May unemployment report, released Friday by the state Employment Development Department, showed the county had 6,200 fewer jobs last month than in May 2002, a 0.4 percent drop. In April, payroll employment dropped 0.1 percent.

Chapman University economist Esmael Adibi said it's a reversal of the trend at the beginning of the year, which showed local job growth beginning to pick up.

"We're just treading water," he said.

He attributed the turnaround to discouraged workers dropping out.

Orange County's labor force – those people working or actively seeking work – dropped 0.3 percent in May and only grew 0.8 percent annually. The labor force typically grows 1.5 percent to 1.8 percent annually, Adibi said.

As a result, he said the May drop in the unemployment rate to 3.6 percent from 3.8 percent in April is misleading.

"If the labor force is dropping faster than employment, sure your unemployment goes down," he said. "It's not because the economy is doing a good job, people are just giving up." Things could get worse as the full impact of state budget cuts hit locally. Huntington Beach officials say they may have to cut about a tenth of the city's 1,000 budgeted positions. On Thursday, notices were sent to 50 employees of a possible layoff. Officials hope the remaining cuts can come from vacancies. Ross de Vol, a Milken Institute economist, said there was some cause for hope.

He called the tourism- and-leisure sector, up about 2,000 jobs in May, "a solid anchor" that has managed to hold up despite the Iraq war.

Perhaps more important, de Vol noted that the drop in the county's manufacturing sector, which is down 20 percent, or 38,200 jobs from the peak in late 2000, appears to have leveled off.

"That was really hurting your economy last year," he said.

Employment in electronic components and communications equipment is still down, but de Vol cited recent economic reports showing some growth in orders. If sustained, he thinks that may translate into more jobs.

Ellia Kassoff, a recruiter specializing in technology jobs for Strategic Software Resources Inc. in Newport Beach, said he's also beginning to see some hiring in technology, mostly in sales.

"We're not seeing clients say, 'I have 10 openings and need help,' it's more like one here and two there," he said. "But this time last year, every sector was telling us, 'It's horrendous.'"