The report from the Labor Department showed the economy added just 54,000 jobs in May, compared with the rise in nonfarm payrolls by 232,000 jobs in April. The report also showed that the unemployment rate rose to 9.1 percent in May from 9 percent in April. May’s payrolls number was well below the 165,000 forecast by analysts in a Bloomberg survey.

Investors had been digesting weak signals about the economy in the days leading up to the monthly report, with gloomy reports on jobs, manufacturing and auto sales that helped to send stocks down by more than 2 percent this week to their biggest declines in percentage terms since last August. Also this week, yields on 10-year Treasury notes fell below 3 percent for the first time in 2011 as investors prepared for the economy to slow.

Just after the market opened on Friday, the three main indexes fell more than 1 percent, but over time they started to retrace some ground.

At noon, the Dow Jones industrial average was down 61.72 points, or 0.50percent. The Standard Poor’s 500-stock index was down 6.54 points, or 0.5 percent. The Nasdaq composite index fell 18.16 points, or 0.65 percent.

The benchmark 10-year Treasury yield was down to 2.96 percent from 3.03 percent.

“The body of evidence suggested we were going to get a very weak number this morning, and that’s what we got,” said David Kelly, the chief market strategist for J.P. Morgan Funds.

“It would not be surprising if they reacted badly today,” Mr. Kelly said, referring to the financial markets. “For the last few weeks we have had this drip, drip, drip of bad economic numbers.”

“A lot of individual investors are skittish and they will sell first and ask questions later,” Mr. Kelly added. “But for the long-term investors it is better to ask the questions first.”

Lawrence Creatura, Portfolio Manager at Federated Investors, said investors were more risk averse than they were about a month a go.

“We are in an environment where the volatility of the underlying data is increasing,” Mr. Creatura said. “Today being a Friday, and being confronted with some pretty dark employment data, investors should be ready for anything.”

“Generally people are not going to want to carry too much risk over the weekend, and that may have an impact on pricing as we move through the day,” he added.

Gloomy reports on jobs, manufacturing and auto sales sent stocks down by more than 2 percent on Wednesday in their biggest declines since last August. Yields on 10-year Treasury notes fell below 3 percent for the first time this year as investors looked for the economy to slow.

After closing down 41.59 points, or 0.34 percent, on Thursday, the Dow was on track for its fifth consecutive weekly loss. The last time the index had closed lower for five consecutive weeks was the five-week period ending on July 23, 2004.

“We are entering a time of year where investors often get skittish, and it makes sense for everyone involved in the markets to buckle their seatbelts because the data indicates we may be in for a bumpy ride,” Mr. Creatura said.

But some economists expect the economy to pick up in the latter part of the year.

Mr. Kelly said he estimated economic growth to pick up, averaging above 3 percent in quarterly growth rates in the second half of the year compared with the 2 percent he forecast for the second quarter. He said a situation for a pick-up in growth was more likely than the country sinking into another recession because of factors including a weak dollar, easy monetary conditions and pent-up demand. Corporate profits are also poised to grow.

“For long-term investors that is still the way I would play this,” he added. “But in the short run this is going to raise a lot of fears about something worse.”

“Because of that, stocks are better value than bonds,” Mr. Kelly said.

Steven Ricchiuto, the chief economist for Mizuho Securities USA, said in a research note that the jobs report was weak enough to mean that the 10-year note would trade down toward 2.75 percent.

West Texas Intermediate crude prices for July fell below $100 before the market opened, to $98.60, down by $1.80.  An hour into the trading day, the price reflected a 42-cent decline to $99.98.

Article source: http://www.nytimes.com/2011/06/04/business/04markets.html?partner=rss&emc=rss