The Dow Jones Industrial Average fell more than 200 points in early trading, with the FTSE 100 closing down more than 60 points, or 1.1 per cent, as the data highlighted that the world’s major economies are either faltering or shrinking.
Many economists believe that the dreary figures will prompt fresh bouts of quantitative easing on both sides of the Atlantic, with a move in the UK predicted for as early as next week.
The latest US job figures showed the economy added 69,000 net jobs in May, well below forecasts and the lowest number for a year.
The jobless rate increased to 8.2 per cent from 8.1 per cent in April, with the number of posts added in March and April being revised down by 49,000.
Jason Conibear, market analysis director at foreign exchange group Cambridge Mercantile, said the “stupendously poor data” had added a “funereal tone” to markets.
He predicted: “The global economy is in a seriously bad way and we’re running out of options to turn things around. More QE is now looking highly likely, in both the US and UK.”
In the UK, key manufacturing figures suggested that sector activity shrank at its fastest pace in three years last month as the global economic slowdown hit demand for British goods.
The Markit/Cips purchasing managers’ index (PMI) survey slumped to 45.9 in May from 50.2 the previous month, well below City hopes for a figure just below 50. A reading above 50 represents growth.
It is the second steepest fall in the survey’s 20-year history and came as new orders dropped at the fastest pace since March 2009.
Markit said the collapse reflected not just the crisis in the eurozone but also the increasing weakness of the UK domestic market, with overall order books shrinking at a faster rate than export orders.
Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club, said the figures were “desperately disappointing”, with worrying echoes of the collapse in activity in 2008.
“The recent trend had been one of a gradual slowdown in activity, but the figures show that the problems are on another level altogether,” he said.
“Clearly the escalation of the eurozone crisis is having a very damaging effect on confidence, not just in the eurozone itself but also in the UK.”
Earlier, data from France and Germany showed their manufacturing sectors contracted at the fastest pace in nearly three years. Italy’s factories contracted for a tenth straight month, while Spain posted the lowest PMI reading of all the countries surveyed, even below Greece.
In China, factory output last month hit its lowest point this year due to weak domestic demand. China’s annual economic growth is now expected to fall to 7.9 per cent in the second quarter, the first dip below 8 per cent since 2009.
Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, said: “What’s really worrying is new orders have started to shrink and inventories have started to build up at an unusually fast pace.”