Rise in US jobless dents hopes of a swift recovery

Stock markets yesterday beat a hasty retreat after a week of strong gains as worse-than-expected US unemployment figures dented investors' hopes that the global economy was in for a swift recovery. But the falls were softened by a survey showing a surprise rise in US consumer confidence.

November's non-farm payroll figures showed unemployment in the world's largest economy rising from 5.4 per cent to 5.7 per cent, against expectations of 5.6 per cent. The measure has risen in each of the past four months and is now at its highest level in more than six years.

The past two months have produced the worst figures since May and June of 1980. Payrolls fell by 331,000 during November, after sliding 468,000 in the previous month. Hotels and airlines have been particularly hard hit amid the decline in the tourist trade following the 11 September terrorist attacks.

Investors took the news as an excuse to take profits following the strong gains seen this week on both the New York and London stock exchanges. The FTSE 100 index closed down 105.1 points at 5,264.7, while the Dow Jones Industrial Average slid as much as 71.55 points to 10,027.59 in early trading, easing later to close down 49.68 points at 10,049.46.

Economists said the weak labour data made it almost certain that the US Federal Reserve would make a further cut in interest rates on Tuesday in a fresh bid to stimulate business investment and consumer spending. The Fed has taken rates to a 40-year low of 2.0 per cent with 10 cuts already this year.

Some Fed-watchers were forecasting a half-point cut, rather than the quarter-point move expected before the latest gloomy data.

Janet Henry, global economist at HSBC, said: "There are still signs that the labour market is deteriorating. A few months of bad data lie ahead, and there is usually a straightforward link between rising unemployment and falling consumer confidence."

But the University of Michigan sounded a more upbeat note, with its keenly watched confidence index coming in ahead of expectations. The index rose for the third consecutive month, to reach 85.8, against expectations of 84.1 and up from last month's 83.9. Consumers were more upbeat about both current conditions as well as future prospects.

Analysts said the recent strength of the stock market and the near-end to the war in Afghanistan had served to outweigh consumers' concerns about losing their jobs. However, some cautioned that the Michigan index could soon register a decline when the full impact of recent job losses is felt. The US economy went into recession in March, according to the respected think tank, the National Bureau of Economic Research. Since then, some 1.2 million jobs have been lost.