Jobs, services data paint gloomy picture in May

By Leah Schnurr and Andy Bruce

NEW YORK/LONDON (Reuters) – Signs of a slowdown in the global economy grew Friday as U.S. employment rose far less than expected in May and service sector growth in major European and emerging Asian economies was uneven.

The U.S. jobless rate rose to 9.1 percent last month as high energy prices and the effects of Japan’s earthquake hampered the economy. Nonfarm payrolls increased 54,000 last month, the Labor Department said, with private employment rising 83,000, the least amount since June.

Economists polled by Reuters had expected payrolls to rise 150,000 and private hiring to increase 175,000.

“This highly disappointing report is a real shocker,” said Mohamed El-Erian, co-chief investment officer of PIMCO in Newport Beach, California.

“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.”

U.S. stock index futures tumbled following the report, pointing to a lower open for Wall Street.

Purchasing managers indexes (PMIs), which measure the activities of thousands of companies around the world, showed growth in the euro zone’s vast services sector sagged for the second month in a row.

While the surveys indicated a welcome easing of inflation pressure in Europe, input prices surged in Russia and also in India, where the service sector expanded at its weakest pace in 20 months.

A confusing picture emerged from Friday’s Chinese services PMIs. The private HSBC survey showed growth accelerating and input price growth hitting a six-month high, but a government survey showed slowing growth and price pressure abating.

On Wednesday, data had 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.

Overall, it suggested businesses are still feeling the disruption to supply lines caused by March’s earthquake and tsunami in Japan, and the costs of the commodities boom earlier this year which are still filtering through emerging markets.

Data due later Friday is expected to show a modest uptick in growth for the vast U.S. services sector.

Friday’s 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 euro zone’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.

 

PRICE PRESSURES

No such easing was seen in the slowing Indian service sector, as input costs increased markedly despite a series of interest rate hikes aimed at stemming rampant price growth.

The HSBC Indian services PMI slipped sharply to 55.0 in May from 59.2 in April — a 20-month low.

Russian service companies fared much better, with the PMI there hitting a 13-month high thanks to a faster increase in new contracts.

While input price inflation also rose, approaching recent highs seen at the start of the year, the Russian service sector looked in rude health.

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. (Reporting by Leah Schnurr; Editing by Padraic Cassidy)