* U.S. jobs data points to recovery losing momentum
* Euro zone manufacturing index at lowest since June 2009
* China May factory survey shows wider economic weakness
* British activity shrank at its fastest in three years
By Pedro da Costa and Jonathan Cable
WASHINGTON/LONDON, June 1 The world's economic
outlook darkened on Friday as reports showed U.S. employment
growth slowing sharply, Chinese factory output barely growing
and European manufacturing falling deeper into malaise.
In a shock that sent global equity markets into a dive, the
U.S. economy added just 69,000 jobs in May, less than half what
analysts expected and well below what is seen as needed to keep
the jobless rate moving lower. Readings for the prior two months
were also revised down, while the unemployment rate rose for the
first time in almost a year, to 8.2 percent.
The Labor Department report dealt a blow to confidence in
the U.S. economic recovery, which until recently had contrasted
with Europe's deteriorating economic situation and seemingly
intractable political crisis over government budget deficits.
"The negative employment data caps the recent deterioration
in global economic data. From China to Europe to the U.S., all
the data have shown real slowing," said John Kilduff, partner at
Again Capital LLC in New York.
The jobs figures, which raised expectations for another
possible round of monetary easing from the Federal Reserve, also
carried an important political dimension.
If sustained, the weakness in employment could threaten
President Barack Obama's bid for reelection in November. His
challenger Mitt Romney said the data was "devastating news" for
Worsening economic conditions were also being felt in major
emerging countries such as Brazil and India, causing some
economists to wonder just where growth is going to come from.
"The global economy downshifted sharply in May, and judging
by these data, the U.S. followed suit," said Michelle Girard,
economist at RBS.
U.S. stocks fell sharply as the employment numbers
compounded worries about upcoming elections in Greece and
banking troubles in Spain, pushing the Dow Jones industrial
average down over 2 percent on the day, and negative for the
year. Treasury bond yields, in contrast, continued to hit record
lows across the board as investors scurried for safety.
In Britain, manufacturing activity shrank at its fastest
pace in three years last month as the global economic slowdown
hit demand for its goods.
Markit's Eurozone Manufacturing Purchasing Managers' Index
dropped to 45.1 in May from 45.9 in April, slightly above a
preliminary reading but marking its lowest level since June
It has been below the 50 mark that divides growth from
contraction for 10 months. Similarly, the output index fell to
44.6 from April's 46.1, also the lowest since June 2009.
U.S. manufacturing proved a bit more resilient, with the
Institute for Supply Management's index falling modestly in May
but still at a respectable level of 53.5. New orders also rose
to their highest since April of 2011.
Earlier data from France and from Germany, Europe's largest
economy, showed their manufacturing sectors contracted at the
fastest pace in nearly three years. It was only German strength
that had prevented the euro zone falling into recession in the
Italy's factories contracted for the tenth straight month,
while in Spain the PMI fell below that of Greece's, and posted
the lowest reading of all the countries surveyed.
The news in Britain, linked inexorably to the fortunes of
the euro zone, was little better.
The UK economy is mired in its second recession in two years
and its PMI plunged to 45.9 last month, its lowest reading since
May 2009 and the second-steepest fall in the survey's 20-year
history. Analysts had expected a more modest dip to 49.8.
The euro zone's economic deterioration prompted more than a
third of economists polled by Reuters this week to say the
European Central Bank will cut interest rates from their record
1.0 percent low before the end of the year to boost growth.
"Fundamentals certainly justify a rate cut any time soon.
However, the ECB might keep some powder dry at next week's
meeting and wait for the outcome of the Greek elections - and
future of the monetary union - to change its policy stance,"
said Annalisa Piazza at Newedge.
Greece, which unleashed the financial maelstrom that has
ravaged the bloc, is due for a crucial second election on June
17 that may determine whether it remains a member of the
Recent Reuters polls of fund managers, economists and money
market traders have all suggested that the battered economy will
still be a member of the 17-nation bloc come 2014.
BRICS TAKE A HIT
Declines in two gauges of China's manufacturing sector were
particularly worrying for investors looking to the world's
second-biggest economy - the main engine of global growth in
recent years - to pick up the slack created by Europe's debt
crisis and the sluggish U.S. economy.
China's annual economic growth is expected by analysts to
fall to 7.9 percent in the second quarter, the first dip below 8
percent since 2009. That could pile pressure on authorities to
attempt further stimulus.
The country's official purchasing managers' index - covering
China's biggest, mainly state-backed firms - fell more than
expected to 50.4 in May, the weakest reading this year and down
from April's 13-month high, with output at its lowest since
India was also feeling the pain. Growth in its gross
domestic product slumped in the first quarter to a nine-year low
of 5.3 percent as the manufacturing sector contracted.
Brazil's economy barely expanded in the first quarter,
setting the stage for another disappointing year and casting new
doubt on the health of emerging markets. The economy grew just
0.2 percent compared to the final three months of 2011, less
than half the pace economists expected.
Things look to have remained weak so far in the second
quarter too, with HSBC's manufacturing index for Brazil holding
steady at 49.3, below the 50 mark that separates growth from