Saturday, June 5, 2010

Stocks slide on weak jobs report

NEW YORK — Stocks tumbled Friday after the Labor Department said hiring remains weak and Hungary became the latest European country to report its economy is in crisis. Interest rates dropped as investors moved money into the safety of Treasury bonds and notes.
The Dow Jones industrial average dropped 323 points, its third-worst slide of the year. The index closed below 10,000 for the second time in two weeks. All the major indexes were down more than 3 percent. The concerns about Hungary pounded the euro to a four-year low.

The drop pushed major stock indexes back into "correction" mode, meaning a decline of at least 10 percent from recent highs.

Retailers were among the hardest hit stocks after investors bet that a weak job market would discourage consumers from spending. Financial stocks also fell sharply on concerns that borrowers would continue having problems paying their bills. Banks were further hurt by worries about their vulnerability to Europe's increasing troubles.

Jobs report disappoints

The government's May jobs report was an unpleasant surprise for investors who had grown a little more upbeat about the domestic economy the past few days. The Labor Department said private employers hired just 41,000 jobs in May, down dramatically from 218,000 in April and the lowest number since January. The unemployment rate fell to 9.7 percent from 9.9 percent in April. That was slightly better than the 9.8 percent unemployment rate economists had forecast.

The jobs report was the latest in a series this week that showed the economy isn't as robust as hoped. But investors had sent stocks higher as they bet on stronger job growth in May.

The reality of the report erased that optimism.

"It's almost as if the worst fears of the market were realized, at least in this one report," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research.

Investors were worried that employers' reluctance to hire would further hurt consumers. Investors were already nervous about consumer spending after retailers reported Thursday that their sales were sluggish during May. Clothing retailer stocks were among the big losers after the jobs report Friday as investors bet that shoppers would stick to buying only necessities.

Credit card companies and regional banks also fell sharply.

Meanwhile, the spokesman for Hungary's prime minister described the country's economy as being in a "grave" situation. However, he said, the government is ready to avoid a crisis like the one being faced by Greece, which had to be bailed out by the European Union.

The Dow fell 323.31, or 3.2 percent, to 9,931.97, its steepest drop since May 20. All 30 stocks that make up the index fell.

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