In U.S., Europe and China, the economic clouds darken

MICHAEL BABAD

Globe and Mail Update
Published Friday, Jun. 01, 2012 7:44AM EDT

Gloom deepens

Global markets plunged today on fresh economic measures from the United States to China to Europe.

What do China’s modern consumers want?

 

A new reading of the U.S. labour market was particularly disappointing, suggesting America still has a long, hard climb back and that its recovery is losing stream.

“Today’s weak payrolls report is unlikely to allay recent intensified concerns about deceleration after a seemingly promising start to the year,” said CIBC World Markets economist Peter Buchanan.

The day kicked off with purchasing managers indexes, which take the temperature of manufacturing, in China and then in Europe. Jobs numbers across Europe were equally disappointing, highlighting the struggles, particularly of the region’s weaker nations.

Here’s the damage so far:

  • The U.S. economy created just 69,000 jobs last month, according to the Labor Department today, well below what was expected, and the unemployment rate inched up to 8.2 per cent. That’s the first time in about a year that the jobless rate has climbed.
  • The Markit Economics measure of manufacturing in the euro zone slipped last month to 45.1 from 45.9. The 50 mark separates contraction from expansion, so that means a contraction in industry is worsening.
  • Unemployment in the 17-member monetary union stands at 11 per cent, while the regional differences are stark, from the highest, in Spain at 24.3 per cent, to the lowest, in Austria at 3.9 per cent. More than 17 million people can’t find jobs. Across the wider 27-member European Union, almost 25 million people are out of work.
  • The reading on manufacturing in China slipped to 50.4, markedly below what was expected and a measure analysts say could further hurt commodities prices. Economist Wei Yao of Société Générale describes China’s outlook as a “bumpy landing.”

Amid all this, investors were grim.

“The flight to safety continues,” said sales trader Yusuf Heusen of IG Index.

“German bund yields are dropping once again, with the two-year note seeing yields actually turn negative thanks to the sheer volume of buying; investors are now so desperate to park their money somewhere safe that they are effectively paying the German government to hold their cash,” he said in a research note.

“A slew of PMIs from around the world show that the global economy remains weak, with particularly worrying readings from the U.K. and Germany, whose indices dropped to their lowest levels since mid-2009.”

Tokyo’s Nikkei lost 1.2 per cent, though Hong Kong’s Hang Seng gained 0.4 per cent. European stocks plunged, followed in North America by theS&P 500 (SPX-I1,285.68-24.65-1.88%), the Dow Jones industrial average (DJIA-I12,187.40-206.05-1.66%) and Toronto’s S&P/TSX composite (TSX-I11,379.90-133.31-1.16%).

“New month, new mood? Not so much,” said Benjamin Reitzes of BMO Nesbitt Burns.

Growth tepid
Canada’s economy expanded at a muted annual pace of 1.9 per cent in the first quarter of the year as consumers took something of a breather.

That matched the growth rate in the final quarter of last year, according to Statistics Canada today, though is below what the Bank of Canada had projected would be an expansion to the tune of 2.5 per cent.

Business investment in Canada drove the expansion in the first three months of this year, while growth in consumer spending, which had powered 2011, slowed.

“The March GDP result doesn’t provide a great handoff to the second quarter, and suffice it to say that we’re not holding our breath for a strong pickup in growth given a still-soft U.S. economy … and confidence headwinds emanating from the European crisis,” said Robert Kavcic of BMO Nesbitt Burns.

“Against this backdrop, the Bank of Canada will likely be on hold for the remainder of the year.”

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