April 20, 2024

Stocks Plummet on Disappointing Economic Reports

Just ahead of the government’s monthly jobs report for May, investors got a disappointing look at the trend in hiring over the last few weeks. The monthly report from ADP Employer Services, the payroll processing firm, said that private employers added 38,000 jobs in May, lower than expectations and the smallest increase since September 2010.

Economists said that the figure in the ADP survey, far less than the 175,000 jobs that had been forecast, could have been a reflection of severe storms in many parts of the country that month, while automobile manufacturers have temporarily laid off workers in response to a disruption in supply chains. Economists from Capital Economics Ltd. said in a research note that the dip also reflected a slowdown in the growth in the service sector.

As a result, some economists lowered their forecasts for the May nonfarm payroll employment numbers, which are to be released by the government on Friday. Goldman Sachs economists said they now expect the payrolls number to come in at 100,000 compared with their previous forecast of 150,000.

“While the ADP report has a mixed track record in forecasting payroll growth, our research indicates it should receive some weight,” they said in a research note. “Moreover, the weakness in the ADP report follows a streak of weaker-than-expected news on both the labor market and activity as whole.”

The slower growth in employment along with fewer new orders were factors in the lower measure of manufacturing last month. In its survey of 18 manufacturing industries, the Institute for Supply Management index fell to a 19-month low of 53.5 points last month from 60.4 the previous month. Analysts surveyed by Bloomberg had estimated that the index would decline to 57.1 points.

“Pressures from rising commodity costs, plus supply-chain disruptions from Japan’s natural disaster, and extreme weather domestically, have combined to slow manufacturing’s momentum,” said Nigel Gault, IHS Global Insight’s chief United States economist.

“This is particularly worrying since manufacturing has been the economy’s shining star,” he added in a research note.

On Wall Street, financials fared poorly in early trading, declining more than 2 percent. Materials, industrials and energy stocks declined by more than 1 percent.

At the close, the Dow Jones industrial average was down 279.65 points, or 2.22 percent, at 12,290.14. The Standard Poor’s 500-stock index was down 30.65 points, or 2.28 percent, at 1,314.55, and the Nasdaq composite index was down 66.11 points, or 2.33 percent, at 2,769.19.

As stocks slumped, investors turned their attention to safer assets, pushing government bond prices higher. The yield on the benchmark 10-year note fell to 2.95 percent from 3.06 percent late Tuesday.

Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company, said Treasuries rose in reaction to the latest economic reports. He said the latest statistics suggested “what appears to be a significant slowdown” in the economy in the last month.

Article source: http://feeds.nytimes.com/click.phdo?i=0f336fcc66b719beff3d99472d064cc8

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