Dow drops 400 on jobs data, surge in oil
NEW YORK -- Wall Street plunged Friday on two troubling economic developments: oil prices that surged $11 and a jump in unemployment that was much larger than the market anticipated. The Dow Jones industrial average fell more than 390 points.
The decline in stocks also helped drive bond prices sharply higher as investors sought a more secure place for their money.
The soaring price of oil has intensified the market's worries that ever-expensive fuel will lead consumers to curtail their spending on nonessentials. And because more than two-thirds of U.S. economic activity comes from consumer spending, oil is being seen as a threat to an already sluggish economy.
The spike in energy prices came as the Labor Department said the nation's unemployment rate jumped to 5.5 percent in May from 5.0 percent in April. It was the biggest monthly increase since February 1986 and the rise leaves unemployment at it highest level since October 2004. Wall Street had predicted an uptick to 5.1 percent.
The number of U.S. jobs shrank by a smaller-than-expected 49,000, but that development offered Wall Street little solace given that May marked the fifth straight month of jobs losses. Signs that the U.S. job market is deteriorating more than anticipated could thwart investors' hopes that the economy is poised for recovery later this year. That notion has helped propel the stock market from its mid-March lows.
The sudden rise in oil prices appeared to weigh most heavily on Wall Street, however, as some investors attributed a portion of the rise in unemployment to a rush of teenagers looking for summer work.
"I think the biggest concern right now is oil and it's potential for a stagflationary environment," said Bill Knapp, investment strategist for Mainstay Investments, a division of New York Life Investment Management. Stagflation occurs when stalling growth accompanies rising prices.
The Dow fell 394.64, or 3.13 percent, to 12,209.81 in its biggest percentage decline since Feb. 27, 2007. Broader stock indicators also declined.
Friday's pullback comes a day after the Dow jumped nearly 214 points, its largest daily point gain since April 18, because of better-than-expected sales from retailers and a dip in weekly jobless claims. The welcome economic news helped investors shrug off a more than $5-a-barrel spike in oil prices. But the further advance in oil on Friday was too much for investors to overlook.
The dollar declined against other major currencies -- a move that makes each barrel of oil more expensive. Gold prices rose. Knapp said that at least some investors believe some of rise in oil is unreasonable.