Disappointing data fuel investors' gloom
New York/ London - Signs of a slowdown in the global economy grew on Friday as US employment rose far less than expected in May and service sector growth in major European and emerging Asian economies was uneven.
The US jobless rate rose to 9.1% in May, closely-watched data showed on Friday. Purchasing managers indexes (PMIs) found the eurozone’s vast services sector sagged for the second month in a row.
Nonetheless, the surveys showed a welcome easing of inflation pressures in Europe, and growth in the US service sector picked up modestly after slowing sharply the month before.
But higher prices hit other regions, including Russia and India, and conflicting data gave a confusing view of China.
US nonfarm payrolls increased 54 000 last month, the Labour Department said, as high energy prices and the effects of Japan’s earthquake hampered the economy.
Private employment rose 83 000, the least amount since June.
“This highly disappointing report is a real shocker,” said Mohamed El-Erian, co-chief investment officer of PIMCO in Newport Beach, California, of the jobs report.
“It is hard to find any silver lining in today’s worrisome report. It speaks to a large unemployment problem that is becoming increasingly structural, and therefore protracted, in nature.”
Economists polled by Reuters had expected payrolls to rise 150 000 and private hiring to increase 175 000.
Global stocks and oil prices slid on Friday’s data.
Recent disappointing reports have raised questions whether softness in the economy is due to temporary factors, such as high oil prices and supply disruptions following Japan’s earthquake, or whether it will prove more protracted.
On Wednesday, data showed a broad-based cooling of growth in world factories, feeding fears that the world’s main economic engines are cooling fast as richer countries cut orders.
“Putting the services and manufacturing readings together... I think the PMIs as a whole are sending a pretty clear signal that there’s a slowing in growth taking place,” said Malcolm Barr, economist at JPMorgan.
The Markit Eurozone Services PMI showed a fall in May to 56.0 from 56.7 in April, holding above the 50 mark that signifies growth for the 21st month.
It showed growing disparities between the eurozone’s strong Franco-German economic core and debt-burdened strugglers like Spain, Ireland and Italy, whose service sectors edged closer to stagnation.
British service sector growth also slipped in May, although like the neighboring euro zone, there was an easing in the upturn of both input and output prices that will come as welcome news for central bankers.
Easing pressures were also seen in the US where a gauge of prices paid fell to its lowest since December. The Institute for Supply Management said its services sector index rose to 54.6 last month from 52.8 in April, coming in just above economists’ forecasts for 54.0.
Even so, growth in the sector was still off the strong levels seen at the beginning of the year.
The HSBC Indian services PMI slipped sharply to 55.0 in May from 59.2 in April - a 20-month low. Input costs increased markedly despite a series of interest rate hikes aimed at stemming rampant price growth.
Russian service companies fared much better, with the PMI there hitting a 13-month high thanks to a faster increase in new contracts.
In China, HSBC’s services PMI showed a big jump to 54.3 last month from April’s near record-low of 51.6, contrasting with muted gains seen in the manufacturing PMIs which have suffered from power shortages and thinning profit margins.
By contrast, the official government survey from the China Federation of Logistics and Purchasing showed a slight slowdown in May - to 61.9 from April’s 62.5 - as well as easing inflation pressure.