A dramatic drop-off in U.S. job growth has erased one of the few bright spots in the global economy, stoking fears that the world’s major countries are inextricably linked in a downward spiral.
The U.S. Labor Department reported Friday that businesses created a meager 69,000 jobs last month — less than half what economists had expected. It was a sharp about-face from the start of the year, when hiring reached more than a quarter of a million jobs. The nation’s unemployment rate also inched up to 8.2 percent.
The disappointing data came as Europe’s financial crisis continued to worsen. The European Union said Friday the unemployment rate in the 17-country euro zone rose to 11 percent in April. Meanwhile, a key measure of
China’s manufacturing sector showed it contracted in May.
“There’s no escaping the fact that just about everywhere you look there’s a slowdown in global growth,” said Dan North, North American chief economist for credit insurance firm Euler Hermes.
That became clear as stock markets across the world fell on Friday. The Dow Jones industrial average erased its gains for the year, plummeting more than 2 percent. German markets dropped more than 3 percent, while Japan saw a 1 percent decline. The price of a barrel of Brent-grade crude oil traded in London fell more than 3 percent to dip below $100 for the first time since October.
The fear that the world’s biggest economies are headed toward a simultaneous slowdown drove investors to seek out the safest haven possible: 10-year U.S. Treasuries. Demand for these bonds pushed yields to a record low of 1.45 percent on Friday — even lower than during the 2008 financial crisis. Meanwhile, the price of gold, another safe harbor, jumped 3.7 percent to more than $1,600 an ounce.
“We’re essentially being held hostage to all these very real, very serious downside risks,” said
Bernard Baumohl, chief global economist for the Economic Outlook Group. “No one quite knows how any of these risks are going to play out.”
The weak jobs report also reverberated through the political arena, where the economy has become the foremost issue in the U.S. presidential campaign. GOP candidate Mitt Romney minced no words in criticizing President Obama’s handling of the recovery, calling the data “devastating news.”
“The president’s re-election slogan may be ‘forward,’ but it seems like we’ve been moving backward,” Romney said in a statement.
Speaking in Minnesota, Obama pointed out that the country is still adding jobs but acknowledged that ramping up the pace of growth was challenging. He pointed to elevated gas prices that have chipped away at Americans’ budgets and said the European fiscal crisis is casting a “shadow” over the U.S. economy.
“We knew the road to recovery would not be easy,” he said. “We knew it would take time.”
Economists had hoped that lackluster job numbers in recent months were merely a statistical fluke caused by unseasonably warm winter weather that prompted businesses to hire people earlier than usual. But Friday’s data suggested something more fundamental: Job growth is at its weakest level since last May, when the economy fell into a slump that lasted through the summer.
That will likely put pressure on the Federal Reserve to reconsider launching new measures to try to stimulate economic growth. With Congress gripped by partisan gridlock, the Fed is essentially the only government institution with the power to try to reduce unemployment. Lately, Fed officials have suggested they are not planning to do anything more, in large part because the economy seemed to be doing so much better.
But now the Fed may have to take another look at the question when officials gather for a policymaking meeting later this month. Many economists do not expect the Fed to take any new action then, but the central bank could set the stage for additional efforts later this summer if the economic recovery continues to be weak.
Among the steps the Fed might take are a firm commitment to hold interest rates at extremely low levels for an even longer period of time — officials now project keeping them low through at least late 2014 — and a new round of Fed purchases of Treasury bonds or mortgage-backed securities — “quantitative easing,” in Fedspeak.
Analysts say the country needs to add roughly 130,000 jobs per month for the recovery to maintain its momentum. But to truly make a dent in the unemployment rate, hiring must reach a sustained rate of 250,000 jobs a month. The country has hit that mark only three times over the past year and a half.
“We had a tease,” said Keith Hall, a senior research fellow at George Mason University and former commissioner of the Bureau of Labor Statistics. “It just didn’t last.”
In May, the health-care and transportation sectors each hired more than 30,000 people, the most of any industry. But those gains were offset by a sharp drop in construction jobs. Economists said a small increase in the number of people who are now looking for work also helped drive up the unemployment rate.
There were small rays of optimism, however. The government also reported that consumer spending rose by 0.3 percent in April and that incomes increased 0.2 percent. Automakers announced strong May sales, with Chrysler up 30 percent in the United States. Ford and General Motors also posted double-digit gains.
But that was not enough to dispel the fog of uncertainty over the direction of the recovery. Carl Camden, chief executive of Kelly Services, a global staffing firm, said businesses will only hire when they are confident that demand will emerge to support those jobs. In addition to worries over Europe, he said his clients remain concerned about domestic issues such as health-care costs and what the presidential election will mean for taxes and government spending cuts.
“Very few companies are willing to take money and invest in the future now,” he said.
Staff writers Zachary S. Goldfarb and Phil Rucker contributed to this report.