By Toby Harnden
PUBLISHED: 11:44 EST, 1 June 2012 | UPDATED: 18:53 EST, 1 June 2012
An disasterous U.S. jobs report that was released on Friday caused the Dow Jones industrial average to drop 275 points, marking the index’s biggest loss since November of 2011 and possibly spelling trouble for President Barack Obama.
Nervous investors opted for safer investments such as bonds, dragging the yield on the benchmark ten-year Treasury note to a record low. Gold spiked $57 an ounce, and oil fell to its lowest since October of 2011.
The Standard & Poor’s 500 index and Nasdaq composite index both fell more than 2 per cent. The Nasdaq has dropped more than 10 per cent since its peak in what traders call a market correction. The S&P 500 is just a point above correction territory.
The gloomy news from Wall Street come on the heels of a dismal Labor Department report, which has revealed that unemployment in the United States rose to 8.2 per cent in May, with the long-term jobless rising by 300,000.
Just 69,000 jobs were added last month, well below the expected 158,000, according to U.S. government figures. That was the fewest number of monthly jobs added in the past year, which could be disastrous for President Barack Obama’s re-election hopes.
Mitt Romney, who has made jobs and the economy the centerpiece of his White House campaign, pounced on the figures as proof that Obama should be booted out of the Oval Office in November.
‘It is now clear to everyone that President Obama’s policies have failed to achieve their goals,’ the presumptive Republican nominee said in a statement. ‘The Obama economy is crushing America’s middle class. Today’s weak jobs report is devastating news for American workers and American families.
‘This week has seen a cascade of one bad piece of economic news after another. Slowing GDP growth, plunging consumer confidence, an increase in unemployment claims, and now another dismal jobs report all stand as a harsh indictment of the President’s handling of the economy.’
The number of long-term unemployed - those jobless for 27 weeks and over – rose from 5.1 to 5.4 million in May. James Pethokoukis, of the conservative American Enterprise Institute, said that the average job gain in the first quarter of the year was 226,000, compared to 73,000 in April and May.
If anything, the real unemployment could be even worse that the very bad figures. The number of those available for work has been slashed by the Labor Department as people have given up hope and stopped trying to get a job.
According to Pethokoukis, if there was same job participation rate as there was when Obama took office in January 2009 then unemployment would be 10.9 per cent.
The stock market promptly plummeted after the figures were released with the Dow Jones Industrial Average dropping by 1.34 per cent or 165.75 points in the first hour of trading.
The Dow closed down 274.88 points, or 2.2 per cent, at 12,118.57. The Dow is off 0.8 per cent for the year; two months ago, it was up more than 8 per cent for the year.
Alan Krueger, chairman of Obama’s Council of Economic Advisors, struggled to put any positive gloss on the numbers, saying that America’s economic woes ‘were long in the making and will not be solved overnight’.
He said: ‘We are still fighting back from the worst economic crisis since the Great Depression. Today we learned that the economy has added private sector jobs for 27 straight months, for a total of 4.3 million payroll jobs over that period. The economy is growing but it is not growing fast enough.’
‘There is much more work that remains to be done to repair the damage caused by the financial crisis and deep recession that began at the end of 2007. Just like last year at this time, our economy is facing serious headwinds, including the crisis in Europe and a spike in gas prices that hit American families’ finances over the past months.
‘It is critical that we continue the President’s economic policies that are helping us dig our way out of the deep hole that was caused by the severe recession.’
His predecessor Austan Goolsbee said: ‘We’re in a race against productivity and the growth rate hasn’t been very high. The stuff in Europe is not making this problem is any easier.’
Republicans, trying to hide their glee at the political damage the numbers could do to Obama’s fortunes alongside the tragedy they mean for many Americans, were derisive about what they said was an attempt to blame President George W. Bush, who left office nearly four years ago.
Representative Eric Cantor, House Majority Leader, told CNBC: ‘This is terrible. These job numbers are pathetic. It really cries out for us to actually try something new now.”
‘We’ve seen again and again the repeated policies of government regulation, of more prescription coming from Washington, all adding uncertainty.
‘There is just too much uncertainty. They don’t know what their tax rates are going to be, they don’t know what their health care costs are going to be. And Lord knows what kind of regulations one of these agencies in Washington are going to come down with.’