An unexpected rise in the unemployment rate caused stocks to
slump again on Friday. The market erased some of its losses following a
positive report on the service industry and news that Greece will get more help
managing its debts.
The Dow fell 68 points, or 0.6 percent, to 12,180 in
afternoon trading. The losses moderated from the early morning, when the Dow
had been down as many as 144 points. The S&P 500 fell 6, or 0.5 percent, to
1,307. The Nasdaq Composite index fell 21, or 0.7 percent, to 2,751.
To many, the weak employment report was the latest signal
that the market’s gains this year may have overshot an increasingly sluggish
economy. “The market has been too high relative to the trajectory we’re
actually on,” said Andrew Wilkinson, senior market analyst with
Interactive Brokers.
The Dow Jones industrial average and the Standard &
Poor’s 500 index are both headed for a fifth straight week of losses. That
would be the longest losing streak for the Dow since July 2004 and the longest
since mid-2008 for the S&P 500. The Dow is still up 5.3 percent for the
year, the S&P 500 3.8 percent.
Stocks had a strong start to the year, hitting their highest
levels in nearly three years in late April. But the market has been sputtering
since then as troubling signs emerged about the economy.
Investors probably overreacted to strong corporate earnings
in driving stocks higher, Wilkinson said. “I think what investors need to
do is get accustomed to a more sluggish pace of growth,” he said.
Employers added only 54,000 new workers in May, the fewest
in eight months and well below what analysts were expecting, the Labor
Department reported. Private companies hired the fewest new workers in nearly a
year. The unemployment rate inched up to 9.1 percent from 9 percent.
Stocks fell sharply after the opening of trading but
recovered some ground after a report from the Institute for Supply Management
came out at midmorning. The group of purchasing executives said the economy’s
service sector grew in May for an 18th straight month. The pace of growth
picked up slightly from the ISM report April, which was the worst in eight
months.
Later in the morning European officials said Greece would
receive the next installment of its emergency loan package, lifting some
uncertainty about Greece’s ongoing fiscal crisis. European stocks and the euro
rose after the European Union, European Central Bank and the International
Monetary Fund gave Greece more breathing room as it tries to service its debts.
The employment report showed hiring was far below analysts’
already-low expectations and far below the 220,000 jobs added in the previous
three months. Estimates of job growth had been as high as 190,000 earlier this
week, but many economists cut their forecasts to below 100,000 after
surprisingly weak economic reports Wednesday, including one on private hiring
from the payroll processor ADP.
The Labor Department’s closely-watched monthly jobs report
reinforced earlier signals that the U.S. economy is slowing. High gas and food
prices have cut into consumer spending and the earthquake and tsunami disaster
in Japan have hurt U.S. manufacturers by slowing down supplies of industrial
parts.
The Dow plunged 280 points Wednesday, its worst drop in
nearly a year, on the weak payrolls report from ADP and the biggest decline in
a key manufacturing index since 1984. That combined with other weak readings on
the economy prompted analysts to lower their projections for growth in 2011.
“We are clearly seeing a significant slowdown in
economic activity, and a lot of that has to do with the effect of higher energy
prices and the disruption from Japan,” said David Kelly, chief market
strategist with J.P. Morgan Funds.
The weak economic news means investors can expect “a
bumpy ride this summer,” Kelly said. Kelly still thinks that economic
growth will pick up in the second half of the year.
The yield on the 10-year Treasury note, a benchmark for many
kinds of business and consumer borrowing, went back above 3 percent. It had
dipped below 2.96 percent in the morning after the jobs report pushed investors
into the safety of government bonds. Yields fall as bond prices rise.
In another sign of the challenges facing consumer-focused
companies, Newell Rubbermaid Inc. shares fell 12 percent after the company
lowered its outlook for sales and earnings in 2011. Large retailers that sell the
company’s products are lowering their expectations for economic growth this
year, the company said.
“Persistent softness in the U.S. economy and increased
inflationary pressure have caused us to revise our outlook for the balance of
the year,” President and CEO Mark Ketchum said in a statement. “Our
revised expectations are lower than they were just a short while ago.”
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