Economy's bleak day of "really nasty news"

A soaring jobless rate, an unprecedented jump in oil prices and a sliding dollar cast fresh doubt Friday on how soon the U.S. economy would be able to break out of a pattern of feeble growth and financial instability.

The unemployment rate shot skyward to 5.5 percent, the biggest leap in 22 years, and crude oil prices rocketed up $10.75 a barrel, sending stock markets tumbling and shaking the economic and political landscape.

It was one of the worst days of economic news in a year already well-stocked with disappointment. The Dow Jones industrial average reacted by plunging 394.64 points, or 3.13 percent, its sharpest decline since Feb. 27, 2007. Other major indicators also dropped about 3 percent.

"Today's events are a combination of really nasty news for American consumers," said Andrew Tilton, a senior economist at Goldman Sachs.

Oil prices hit a trading record of more than $139 a barrel before settling at $138.54. This more than erased a drop earlier in the week and promised further increases in gasoline prices. The average for a gallon of unleaded in the Seattle area Friday was $4.24, according to AAA.

The one-day increase in oil prices was almost double the biggest ever in dollar terms, the largest in percentage terms since June 1996 and more than the cost of an entire barrel a decade ago.

Meanwhile, the jobless rate for May was up 0.5 percentage points from April, the Labor Department said, the largest swing in a single month since 1986. The number of jobs on employers' payrolls fell by 49,000, the fifth consecutive monthly decline for an economy that has shed 324,000 jobs this year. Joblessness rose across race and gender. Professional, commercial, construction, business service and manufacturing employers all cut jobs.

"When you have an employment situation like that, and you see crude bounce ... that's shocking to anything that's going to touch the consumer," said Bart Barnett, head of equity trading at Morgan Keegan, an investment and brokerage firm. "Outside of anything to do with oil, everything is down — airlines, restaurants, furniture stores, retailers, transportation."

Much of the spike in unemployment was caused by an unusually large surge of teenagers and people in their 20s into the labor force. And those young people had little success finding work. The jobless rate among 16- to 19-year-olds rose to 18.7 percent from 15.4 percent in April. Retailers, who employ a large number of unskilled teens during the summer, cut 27,000 jobs.

Rising unemployment, however, spread well beyond that group. The jobless rate rose among almost every other demographic — men, women, blacks and whites. The rate was unchanged among Latinos.

At the same time, average weekly earnings for nonmanagerial workers appeared to lose ground to inflation, rising 3.2 percent in the year ending in May. Analysts expect this to be less than inflation, a figure that has not been released.

"It's crystal clear that the economy is not generating the job and income growth people need to maintain their living standards," said Jared Bernstein, senior economist at the Economic Policy Institute.

The renewed upturn in oil prices left many experts shaking their heads. Prices had declined earlier this week. In congressional testimony, legendary hedge-fund manager George Soros warned of an oil-price "bubble." The Commodity Futures Trading Commission said it was investigating price manipulation and warned traders.

The increase Friday comes on top of a nearly $6 increase the previous day, for a two-day jump of $16.24 a barrel, or 13 percent. Morgan Stanley analyst Ole Slorer predicted that crude oil would reach $150 by the Fourth of July, in time for peak driving-vacation season.

That means no end in sight for spiraling gas prices, already above $4 per gallon in much of the country.

"This is the worst possible news at the worst possible time," said John Townsend, a spokesman for AAA. "Any hope we had of relief at the pumps won't happen soon."

With consumption of gasoline slumping in the United States, one of the main drivers behind world oil demand has been China's rapidly rising imports of diesel fuel to make up for coal-fired electricity lost since the Sichuan province earthquake and to stockpile in advance of the Summer Olympics.

The sharp rise in oil prices also was fueled in part by supply fears. Israel's Transportation Minister Shaul Mofaz — a former defense minister and contender for the post of prime minister — told a newspaper that Iran faced airstrikes if it did not abandon its nuclear program.

On stock markets, all of this looked grim. High oil prices have drained money from consumers' pockets and boosted costs for businesses. They also have siphoned about $1.5 billion a day out of the U.S. economy and into oil-producing countries.

An almost forgotten element of Friday's chaos was the U.S. dollar's continuing slump. Europe's central bank president, Jean-Claude Trichet, started the two-day surge in oil prices Thursday when he suggested that he might increase interest rates. That strengthened the euro, Europe's currency, against the dollar. Because oil is priced in dollars on world markets, a weaker dollar incites sellers to require higher prices.

Federal Reserve Chairman Ben Bernanke caused a stir earlier in the week by stressing the importance of a strong dollar, a task historically reserved for the treasury secretary. His words helped temporarily, but the dollar plunged again Friday against the euro, which now trades at $1.568.

Details about the sliding dollar were provided by McClatchy Newspapers.