Stocks Hammered On Jobs Report, Surge In Oil
The current jobless rate stands at its highest level since October 2004.
June 6, 2008
Stocks headed into the weekend in poor fashion, whacked by a big jump in the nation’s unemployment rate and another spike in oil prices.
The Dow Jones Industrial Average was down 360 points at 12240 just before the close in New York, while the Nasdaq Composite index dropped 65 points to 2483. Financial names were among the biggest losers Friday afternoon, with Morgan Stanley off 6%, Citi shedding 4.8%, Merrill down close to 4%, and Goldman lower by 3.3%.
The government’s monthly employment report Friday morning showed a drop in nonfarm payrolls of about 49,000 jobs, which was essentially in line with what economists had expected. But, the unemployment rate saw its largest one-month increase in more than two decades, surging to 5.5% in May from 5% in April. The current jobless rate stands at its highest level since October 2004.
“While the increase is quite large for one month, the unemployment rate had essentially been stuck near 5% during the prior five-month period of private job declines, and was due for an eventual correction higher,” said Citigroup economist Steven Wieting. “In May, the rise was led by a 577,000 increase in the labor force coupled with a 285,000 drop in household survey employment. In fact, the 1.2 million increase in the labor force over the past three months is a quite encouraging addition to the US growth capacity.”
Wieting also pointed out the Federal Reserve's Senior Loan Officer's survey shows the net percentage of banks withdrawing from consumer and other lending has increased to recessionary levels. “The tightening represents both forward looking perceptions of risk and the health of financial institutions,” he says. “While financial conditions change, the tightenings lead employment by a full year." He said the data leave him “less-than-confident that cyclical risks have withered.”
Meanwhile, earlier in the day the price of oil surged by almost $10, though has now pulled back off that level. Oil was recently trading at a shade over $136 on the New York Merc, up almost $9.
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