U.S. jobs woes add to global factories gloom

By Burton Frierson and Ross Finley

NEW YORK/LONDON (Reuters) - Factories are struggling in countries ranging from China to Europe to the United States, while U.S. unemployment hit a four-year high, raising concerns that economies around the globe could slip into recession, according to data released on Friday.

In the United States, the world's largest economy, the jobless rate jumped to 5.7 percent in July as employers cut jobs for the seventh straight month, which is likely to weaken U.S. consumers' appetite for global goods.

This could deepen the fall in demand already hurting manufacturers around the world, which are also struggling with high commodities prices. It also puts central banks in a bind over interest rates as they worry about the opposing problems of elevated inflation and low growth.

Reports from China, the euro zone, Germany, Britain and Sweden pointed to a rapid slowdown that is leaving few unscathed a year after the start of a credit crunch, which still has world markets in its clutches.

In Europe, where some of its most fragile economies like Italy and Spain are flirting with recession, surveys of manufacturing companies published on Friday suggested that tougher times lay ahead.

"There is a risk that the euro zone could fall into recession," said Juergen Michels, an economist with Citigroup in London.

Even China, the world's fourth-largest economy that has been booming for years, saw manufacturing activity stumble in July.

The Institute for Supply Management said U.S. factory activity managed to hold steady last month, a decent achievement given the economic headwinds.

But there were signs that weakness in the global economy could be starting to hurt exports, one of the few bright spots for the United States this year.

"If you look at ISM and the unemployment number together, it suggests an economy that is, at best, stuck in neutral," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.

Stocks were lower on Wall Street and ended down in Europe and Tokyo. The dollar gained against the euro. U.S. government bonds were mixed.

INACTIVE

Global manufacturing activity slipped to its lowest level in over five years in July, dragged down by sharp falls in Britain, the euro zone and Japan, while prices soared to record highs, a survey showed.

The JP Morgan Global Manufacturing PMI, compiled with research and supply management organizations, fell to 49.0 in July from 49.5, its lowest level in over five years. It was the second month in a row that the index remained below the 50.0 mark dividing growth from contraction.

China's manufacturing sector contracted in July for the first time since the 2005 launch of an official monthly survey, an indication that weaker exports are taking a toll on the economy.