US open: Stocks slide after non-farm payrolls miss forecasts

US stocks dropped on Friday after the non-farm payrolls report fell far short of analysts’ expectations.

The Dow Jones Industrial Average dipped 0.57%, the S&P 500 declined 0.62% and the Nasdaq slid 0.62% at 1516 BST. Banks were the worst performing industry group, with the Philadelphia/KBW gauge of lenders´ shares dropping 3.52% to 68.88, alongside an eight basis point drop in the yield on the benchmark 10-year US Treasury note to 1.72%.

The US added 38,000 jobs in May, well below the 160,000 that economists had expected, the Labor Department revealed. It marked the weakest non-farm payrolls report since September 2010 and compared to a downwardly revised 123,000 jobs in April. The unemployment rate fell to 4.7% in May from 5.0% in April, beating estimates of 4.9%. This was due in part to a drop in the labour force participation rate from 62.8% to 62.6%.

Average hourly earnings grew by 0.2% month-on-month and 2.5% year-on-year, in-line with economists´ forecasts.

"The Federal Reserve’s plans to raise interest rates in the near future have hit a serious bump in the road in the form of the May jobs report, which has fallen well below expectations and shown the lowest monthly rate of job creation since 2010,” said Ranko Berich, head of market analysis at Monex Europe.

“The Fed has recently been signalling that it is willing to raise rates if fundamental data continues to improve, but today’s report shows that this is no longer the case. Only the most bullish FOMC members are likely to be willing to look through this month’s weak NFP report, and as a result there’s a very good chance we’ll see the Fed hold fire on interest rates for even longer."

Oil prices fell following the report with West Texas Intermediate crude down 0.80% to $48.81 per barrel and Brent crude down 0.73% to $49.64 per barrel at 1529 BST.

Earlier on Friday, Federal Reserve Bank of Chicago President Charles Evans said the US economy continues to be affected by downside risks.

“I see the value in making small and gradual adjustments to the fed-funds rate as the data improve and confirm my positive baseline outlook for the US,” he said.

The Fed is due to next meet on 16-17 June when it announces its next decision on interest rates.

Adding to the negative sentiment, data released by Markit pointed to a slowdown in the US services sector in May. The final US services purchasing managers’ index came in at 51.3 in May, up a touch from the flash estimate of 51.2 but down from 52.8 in April. A reading above 50 signals an expansion while a level below that indicates a contraction.

The ISM non-manufacturing composite came in at 52.9 in May, trailing estimates for a reading of 55.4 and following a level of 55.7 in April.

More positively, US factory orders rose the most in six months in April, according to the Commerce Department. New orders for manufactured goods jumped 1.9% year-on-year in April, ahead of forecasts for a 1.8% increase and following a 1.5% gain in March.

In company news, shares in retailer GAP advanced despite the company saying late on Thursday that sales in May fell 5%, while same-store sales dropped 6%.

Talen Energy Corp. gained following news the independent power producer has agreed to be bought by private investment company Riverstone Holdings.

Twitter Inc. and Yahoo were under the cosh following reports that executives from the companies met to discuss a possible merger several weeks ago.