Politics & Government

Global markets plunge on fears of U.S. jobs report

WASHINGTON — A steep drop in stock prices worldwide, fears of an imminent wave of global debt defaults and a bevy of conflicting economic reports are producing anticipation and trepidation about Friday's new employment data from the U.S. government.

At the close of trading Thursday, the Dow Jones Industrial Average briefly dropped below 10000 before closing down 268.37 points at 10002.20. Similarly, the S&P 500 fell 34.17 points to 1063.11 and the Nasdaq finished down 65.48 points at 2125.43.

Several factors spooked financial markets, chief among them fear that the inability of Greece to pay its debts may signal a coming broader trend of defaults on sovereign debt — the bonds that countries issue.

Stock markets globally took a pounding, ranging from investors' darling Brazil , whose Bovespa exchange plunged 4.73 percent, to Germany's DAX index, which fell 2.45 percent. Portugal's PSI finished down 4.98 percent, and Spain's IBEX fell 5.94 percent. The panic spread to stock exchanges in Asia as they opened early Friday, with exchanges in Hong Kong, Shanghai and Tokyo down sharply.

Some pessimistic analysts fear that debt defaults could be the equivalent of a new subprime crisis that further destabilizes global financial institutions. They point to Spain, Portugal and Iceland as other countries with uncomfortably high debt loads, and this opens the door to discord in the European Union .

Cascading fears sent the dollar soaring against the euro, and in turn oil prices scurried backward, in a move that could benefit consumers. Oil settled down $3.84 to $73.14 a barrel on the New York Mercantile Exchange .

Also weighing on global stocks were concerns that the U.S. recovery may be weaker than thought. The Labor Department reported Thursday that initial claims for jobless benefits leapt by 8,000 for the week and the total number of 480,000 was 20,000 higher than consensus forecasts.

This data suggested that hopes for a big improvement in the jobs outlook might be premature. Financial markets across the globe will be closely watching Friday's employment report for January from the Bureau of Labor Statistics . They'll be trying to gauge whether the strong economic growth posted in the final three months of 2009 is paper growth or whether it points to hiring, or at least an end to job losses.

Employers shed 85,000 jobs in December, but revised statistics also showed that employers added 4,000 jobs in November. That fostered hopes that a return to hiring is near.

Despite those positive indicators, there were equally troubling ones, however. On Wednesday, Challenger, Gray & Christmas Inc. , a job placement company, released its latest monthly survey showing that employers in January announced 71,482 layoffs at the start of 2010. It marked the first monthly increase in layoffs since July 2009 .

Earlier this week, the ADP employment report, which measures private-sector hiring, excluding those for state, local and federal government, estimated that 22,000 jobs were lost in January.

That was a modest number, and one that continues to improve month after month, spurring hopes of a good January report from the Labor Department .

It's clear from the conflicting data, however, that progress is likely to come in fits and starts and not a steady uphill climb.

"In contrast to the optimists who think we might be getting near 100,000 employment growth, I think the next five months we'll be lucky to average 65,000," said Robert Gordon , a labor economist at Northwestern University in Evanston, Ill.

Part of the problem is that what happens in the job market hinges on rising demand for goods and services, and that's being restrained by ongoing problems in credit markets. The uncertain jobs outlook weights heavily on consumers, who tend to save if they fear their income could drop or disappear suddenly.

"Those are the biggest factors that will slow the recovery," John Challenger , the chief executive of Challenger, Gray & Christmas, said in an interview. "It's just a question of how long it's going to take (for demand and confidence to return.) And that constrains everything else."

The latest reading of the RBC Index, a monthly survey by RBC Capital Markets on consumer attitudes about the current and future state of the economy, found continuing stress Thursday. The index fell 18.9 points from January's reading.

The group's chief economist, Tom Porcelli , said in a statement that "it's evident that 'less bad' is just not good enough for U.S. consumers."

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