Saturday, 2 June 2012

Markets tumble as US employment slows, global manufacturing weakens

Markets were hit on Friday as economic data provided clear signals of a slowing global economy. The S&P 500 plunged 2.5 percent, its biggest drop since November, and the STOXX Europe 600 fell 1.9 percent. The US 10-year Treasury yield fell 10 basis points to 1.46 percent. Oil plunged 3.8 percent to an eight-month low of $83.23 a barrel.

In the US, the employment report on Friday showed that the economy added just 69,000 jobs in May. The unemployment rate rose to 8.2 percent in May from 8.1 percent in April.

Manufacturing in the US also showed signs of slowing. The Institute for Supply Management's manufacturing index fell to 53.5 in May from 54.8 in April. Markit's manufacturing PMI fell to 54.0 in May from 56.0 in April.

Growth in personal income also slowed to 0.2 percent in April from 0.4 percent in March. Encouragingly, however, consumer spending increased 0.3 percent in April, better than the 0.2 percent increase in March.

Construction spending also increased 0.3 percent in April, the same rate as in March.

In any case, the US economy is easily outperforming the eurozone economy, where the unemployment rate was 11.0 percent in April, the same as in March and the highest on record. In addition, Markit's manufacturing PMI for the euro area fell to 45.1 in May from 45.9 in April.

Elsewhere in Europe, there has been a dramatic collapse in manufacturing in the UK. The Markit/CIPS manufacturing PMI plunged to 45.9 in May, the lowest reading since May 2009, from 50.2 in April.

Even China's manufacturing sector is at risk of contraction. HSBC's manufacturing PMI fell to 48.4 in May from 49.3 in April. The China Federation of Logistics and Purchasing's manufacturing PMI fell to 50.4 in May from 53.3 in April.

Rounding off the manufacturing purchasing managers surveys in the major economies, Japan had earlier in the week managed to avoid showing a decline. Nevertheless, the Markit/JMMA Japan manufacturing PMI was barely in expansion in May, coming in at 50.7, unchanged from the previous month.

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