The statistics had a devastating effect on the Dow Jones industrial average, which by the close last night had shed 171.24 points, equivalent to roughly 3 per cent of the market's value, closing at 5,470.45. In spite of trading curbs, the index was briefly off by more than 200 points.
The New York panic washed into the London market, causing the FT-SE 100 index of leading stocks to shrug off yesterday's quarter-point reduction in the cost of borrowing in the UK.
Instead, the London market took its lead from the panicky opening in New York. At one point the FT-SE 100 dropped to 72 points down, before regaining some of its poise to close 47.9 points off at 3,710.3. The day's loss means the index is now only 21 points, or less than 1 per cent, higher than at the beginning of the year.
In the US a bigger beating was taken by the bond market, with the Treasury 30-year long bond down by almost three full points yesterday evening. The 30-year yield meanwhile climbed from 6.46 per cent to 6.74 per cent. This was the bond market's worst single-day fall since the start of the Gulf war.
Sparking it all was the report from the US Labor Department showing a net increase of 705,000 non-farm jobs in February, far exceeding the expectations of most analysts. It was the biggest single monthly gain in 13 years. The overall unemployment rate, meanwhile, fell to 5.5 per cent.
The report in effect torpedoed the notion popular with many analysts over recent weeks that the expansion in the US economy had run its course and that a period of recession might even have been in prospect. It was that scenario that had kept hopes alive that the Federal Reserve might have made one more cut in interest rates at its next policy meeting on 26 March.
By contrast, an unemployment rate of 5.5 per cent is likely now to stir renewed fears of a return of inflationary pressures in the US economy as employers begin to face difficulties in maintaining workforce numbers. Against that kind of background any easing of monetary conditions would seem most unlikely.
The market jolt raised some fears that the Dow Jones index, which has set 16 record highs this year, might at last be due for a correction or even a disastrous reverse reminiscent of the collapse of 1987. "After 1987 you don't know when that day will arrive again," commented Darrel Ladra, an independent broker. "Us older guys, we have a little bit of fear in our souls". To put the fall in some context, however, the 3 per cent drop in the Dow compared with the 22 per cent wipe-out suffered on one day in 1987.
"The employment report blew everyone away," said David Shulman, chief equity strategist at Salomon Brothers. "It's changed the perception of Fed policy. No one believes the Fed will ease at the end of March and it changes the perception that the economy is weak at all."
Comment, page 21
Market Report, page 22