A dismal jobs report Friday rekindled fears that the economy is stumbling, sending stocks plunging, stoking talk of new life-support moves by the Federal Reserve and suggesting new political problems for President Barack Obama as he seeks re-election.
Stocks in the United States and around the world slumped on the disappointing jobs numbers, coupled with news that previous months had been worse than thought, all of it magnified by reports of troubles in economic powerhouses China and India. The Dow Jones industrial average, dropping Friday by another 274.88 points to close at 12,118.57, now has erased all its gains for the year. The S&P 500 was off 32.29 points to 1,278.04 and the Nasdaq ended 79.86 points in the red at 2,747.48.
Fearful investors fled to havens such as U.S. Treasury bonds, driving the interest rate, or yield, on a 10-year government bond down to an all-time low below 1.5 percent. At that rate – below expected inflation – investors essentially were willing to lose a small amount in exchange for security.
Driving the selloff, the Labor Department reported that U.S. employers added a net of just 69,000 jobs in May, about half of what had been expected, and the unemployment rate ticked up to 8.2 percent. The private sector created 82,000 jobs, offset by cuts of 13,000 government jobs.
At the same time, the government revised downward its earlier estimates of job growth for March and April, shaving them by 11,000 and 38,000, respectively. Job growth in April was not 115,000 but 77,000, and employers have added fewer than 100,000 jobs a month for two consecutive months.
That’s important, because economists think the economy needs to add 100,000 jobs per month to keep pace with new entrants into the workforce and 150,000 monthly to begin whittling away at the jobless rate.
“The jobs report was simply ugly. The decline in payroll jobs, the downward revisions to previous months, the increase in unemployment, the weak gain in wages, all point to a much softer economy this spring,” said Mark Zandi, the chief economist for forecaster Moody’s Analytics. “Businesses are very skittish and have pulled back in response to the mounting European turmoil and weaker Chinese economy.”
A potential bright spot: Crude oil prices continued their downward plunge Friday, to about $82 a barrel in late trading. That’s more than $30 a barrel lower than earlier this year, a drop likely to lead to lower gasoline prices.
Obama, appearing at a Honeywell plant in Minnesota, didn’t directly mention the job numbers, instead pleading for patience as a weak recovery lumbers along in fits and starts.
“We will come back stronger,” the president said. “We do have better days ahead.”
He blamed high gasoline prices earlier this year for weighing down U.S. consumers and Europe’s widening debt crisis for slowing down the U.S. economy. “Our economy is still facing some serious head winds,” he said.
Already locked in a close re-election battle with Republican rival Mitt Romney, Obama’s campaign is eager for signs of improvement in the economy heading into the summer, and any trend downward could hurt his chances.
Since World War II, four presidents have sought re-election with jobless rates above 7 percent. Three lost – Gerald Ford in 1976, Jimmy Carter in 1980 and George H.W. Bush in 1992. The only one who won, Ronald Reagan in 1984, did it at a time when unemployment was 7.45 percent but had been improving steadily over the previous year.
Romney criticized Obama on Friday, charging that administration policies, not global events or gas prices, are behind the tepid hiring.
In a statement minutes after the job numbers came out, Romney said it “is now clear to everyone that President Obama’s policies have failed to achieve their goals and that the Obama economy is crushing America’s middle class.”
There was little in Friday’s report to offer a sugar coating. Professional and business services, encompassing the white-collar jobs that lead to spending in the economy, fell by 1,000 in May. The hard-hit construction sector shed another 28,000 jobs, and leisure and hospitality fell by 9,000 jobs. That’s significant, since leisure and hospitality reflects business travel along with Americans taking personal trips and vacations.
The one bright spot in the report was that the manufacturing sector added another 12,000 jobs, bringing its total to 173,000 new jobs over the past six months, much of it by automotive manufacturers. That’s hardly robust, but it’s growth in a sector that both political parties view as important.
Overall, the report points to a pullback in the U.S. economy, and it was consistent with what’s happening globally.
Europe’s debt crisis – fueled by fears that Greek voters will effectively decide on June 17 to exit the eurozone – also weighed on financial markets. What happens with Greece is important, as several European nations already are in or are heading into recession. The zone is the chief export market for China, which on Friday reported a seventh consecutive month of falling exports of manufactured goods, adding to concerns about a global slowdown.
India, Brazil and China are reporting significant slowdowns, and these emerging markets had been an engine that powered the world economy when the United States and Europe were under stress.
These markets are also important for U.S. exports of airplanes, technology and farm products, and all now are importing less from the United States and elsewhere.
Many U.S. corporations also are heavily invested in and are selling to these emerging markets, another way in which the global slowdown feeds back into the U.S. economy.
Investors also are fretting about the so-called fiscal cliff coming at the end of the year, when a host of tax cuts are set to expire and automatic budget reductions are to go into effect. The combination could shave 3 percentage points of growth from the U.S. economy if gridlocked Congress doesn’t act by year’s end.
“The bottom line is the economic recovery has hit another wall. Until Europe nails things down and policymakers address the fast-approaching fiscal cliff, the recovery will continue to struggle,” Zandi said.
Friday’s developments renewed hopes in financial markets that the Federal Reserve will step in again, as it has twice before, and purchase bonds in an attempt to spark more economic activity, called quantitative easing.
One analyst said it was likely that the Fed would announce another round of quantitative easing at its August or September meetings. “The Fed will not sit idle as the economy slows,” Michelle Meyer, a senior economist with Bank of America Merrill Lynch, said in a research note.
Nigel Gault, the chief U.S. economist for forecaster IHS Global Insight, shared that view, saying in a note to investors that “we expect the Fed will probably try to keep pumping in stimulus in some form in the second half of the year. But for the moment, the markets are doing the job of driving down long-term rates without extra help from the Fed.”
The Friday report was considerably weaker than the ADP National Employment Report, a closely followed gauge of private payrolls that was released Thursday and found that 133,000 private-sector jobs had been created in May. That’s considerably more than the 82,000 private-sector jobs the Labor Department reported during that month.
Some economists think that the ADP report better captures what’s going on in small business, so the gap between the reports could suggest that things aren’t as bad for hiring as the government report suggests. This was supported by an increase of 422,000 people who reported new employment in the Labor Department household survey released Friday.
Another variable open to interpretation is Friday’s slight rise in the unemployment rate, from 8.1 percent in April to 8.2 percent in May. That might be a good sign since the labor force-participation rate inched up by two-tenths of a percentage point, suggesting that frustrated workers are more optimistic and are looking for work again.
But much in the jobs report weighed against any positive narratives. The number of people reporting that they’re working part time but want full-time work edged up. Also up was the number of people who’ve been out of the labor force but have looked for jobs sometime in the past 12 months and would like to go back to work.
Often referred to as indicators of underemployment, those figures give a clear picture of how much stress there still is in the labor market.