World growth at risk as U.S. employment stumbles

Fri Jun 1, 2012 3:45pm EDT
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By Pedro da Costa and Jonathan Cable

WASHINGTON/LONDON (Reuters) - 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 American workers.

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.   Continued...

A labourer works at a textile mill in Huaibei, Anhui province June 1, 2012. REUTERS/Stringer