Stocks Drop Sharply As Unemployment Rate Soars

A monthly report on United States unemployment that fell far short of expectations sent stocks and interest rates sharply lower Friday.

The Dow Jones industrial average dropped 158 points.

Investors got an unpleasant surprise from the Labor Department’s report that 431,000 jobs were created last month. Most of those jobs, 411,000, came from the government’s hiring of temporary census workers. Economists polled by Thomson Reuters had forecast employers would add 513,000 jobs.

Hiring by private employers was particularly weak, which is raising concerns that the economic recovery remains slow. Private employers added just 41,000 jobs in May, down from 218,000 in April and the fewest since January.

The unemployment rate fell to 9.7 per cent from 9.9 per cent in April. That was slightly better than the 9.8 per cent unemployment rate economists had forecast. That number, however, could creep higher again as more people try to find work and census workers lose their temporary jobs.

Overall, 15 million American remain unemployed. Including workers who have given up looking for work or part-time workers who want full-time jobs, the so-called underemployment rate dipped to 16.6 per cent in May from 17.1 per cent a month earlier.

The monthly jobs report is one of the most important reports on the economic calendar. High unemployment remains one of the biggest obstacles to strong, sustained growth. Without people returning to the work force, consumer spending is expected to remain sluggish and limit future growth. Consumer spending accounts for the bulk of economic activity.

In morning trading, the Dow plummeted 158.10, or 1.5 per cent, to 10,096.80. The Standard & Poor’s 500 index fell 18.58, or 1.7 per cent, to 1,084.25, while the Nasdaq composite index futures dropped 39.83, or 1.7 per cent, to 1,864.50.

About 18 stocks fell for every one that rose on the New York Stock Exchange where volume came to 77.9 million shares.

Investors poured into safe-havens like U.S. Treasurys because of the weak employment report and a faltering euro. The yield on the 10-year Treasury note, which moves opposite its price, fell to 3.25 per cent from 3.37 per cent late Thursday. The yield on the 10-year note is often used as a benchmark for consumer loans and mortgages.

Fresh concerns about the health of European banks also dragged down U.S. and European indexes.

The euro, which is used by 16 countries in Europe, fell as low as $1.2019 before climbing back to $1.2045. The euro has become an indicator for investors’ confidence in Europe’s economy. European and U.S. stocks have often mirrored moves in the euro over the past month.