The Bureau of Labor Statistics of the U.S. Labor Department on Friday reported the largest jump in the nation's unemployment rate since 1986, sending the stock market reeling and commodity prices sharply upward.

The email alert from BLS read like a dirge: "The unemployment rate rose from 5.0 to 5.5% in May, and nonfarm payroll employment continued to trend down (-49,000). Employment continued to fall in construction, manufacturing, retail trade, and temporary help services, while health care continued to add jobs. Average hourly earnings rose by 5 cents, or 0.3%."

The number of unemployed increased by 861,000 to 8.5 million in May, 23.2% higher than the 6.9 million unemployed in May, 2007. Total nonfarm payroll employment has fallen by 324,000 so far in 2008.

The declines were spread broadly across industries. Construction fell by another 34,000 in May, marking a loss of 475,000 jobs since an employment peak in September 2006. Manufacturing lost 26,000, with job losses in wood products (-8,000), computer and electronic products (-8,000), and nonmetallic mineral products (-5,000). Retail decreased by 27,000, with department stores losing 15,000 jobs and gas stations 6,000. Professional and business services was down 39,000.

Health care, meantime, added 34,000 jobs, as did restaurants and bars, up 12,000.

The equity markets opened sharply lower, and the Dow Industrials were down more than 200 points within the first half hour of trading. The builder group was down as well, with several of the bellwether stocks approaching their March lows. Toll Brothers (NYSE:TOL), which announced a $93.7 million loss for its fiscal second quarter earlier in the week, was down nearly 4% at $19.66, and Hovnanian Enterprises, which lost $340 million in its second fiscal quarter, was down nearly 3% at $7.11. The S&P Home Builder ETF(AMEX:XHB) was off 3.5% at $19.12 shortly after 10 a.m.

Oil climbed back over $130 a barrel, and commodity stocks rose sharply as investors fled for the cover of hard assets. The streetTRACKS Gold Shares ETF (NYSE:GLD) was up 1.8% at $87.99. Meantime, the Chicago Board Options Exchange Jumbo Volatility Index (CBOE:VIX) shot up 11.8% to $20.82.