Fears that the economy is stalling sent the Dow Jones Industrial Average down 280 points, erasing more than a quarter of the stock market's gains for the year. Treasury bond yields fell to their lowest level since December as traders put a higher value on safer investments.
The Dow Jones Industrial Average dropped 279.65 points, or 2.2 percent, to 12,290.14. It was the biggest point drop since June 4 of last year, and the largest percentage drop since August. The S&P index lost 30.65, or 2.3 percent, to 1,314.55. The Nasdaq composite fell 66.11, or 2.3 percent, to 2,769.19.
The yield on the benchmark 10-year Treasury bond fell to 2.95 percent. Bond yields fall when prices rise.
Doubts about the economy's strength that built in May were compounded by were weaker-than-expected reports on manufacturing and jobs. The Institute for Supply Management's manufacturing index fell to 53.5 in May from 60.4 in April. A reading of more than 50 indicates the manufacturing industry is growing, but the index had been as high as 61.4 in February. Private employers added just 38,000 jobs in May, down from 177,000 in April, according to payroll processor ADP. Analysts had expected 180,000 new jobs.
"It looks like this recovery has hit its second "soft patch," which for a recovery that is less than two years old is troubling," said Paul Ashworth, chief U.S. economist for Capital Economics.
The manufacturing and jobs reports, plus a decline in automobile sales in May led several economists to lower their expectations for the year. JP Morgan was among a handful of investment banks that revised down its estimate for GDP growth in the second quarter to 2 percent. The downgrade followed one the bank issued last week. The Dow was down nearly 180 points in midday trading and lost another 100 points after noon as asset management firms sent notes to their clients announcing their economic revisions.
The latest reports on retail sales, first-time applications for unemployment benefits and factory orders will be released Thursday and analysts say any additional signs of economic weakness could push the market even lower.
On the heels of those readings, the Labor Department's more comprehensive jobs report, which includes hiring by both private employers and the government, will be released Friday. The ADP figures include about 24 million workers at the 430,000 companies that use ADP to process their payrolls while the government's numbers capture the entire workforce of about 140 million. Analysts are already expecting those figures to be worse than they anticipated just a few weeks ago.
"As far as we can tell, employers have hugely overreacted to the surge in oil prices, which has slowed but not killed consumption," said Ian Shepherdson, chief U.S. economist for High Frequency Economics. The weak ADP results pushed him to cut his forecast for overall job growth in May to 75,000. He earlier had forecast Friday's report to show growth of 175,000 jobs.
Stock losses came across the market, with all 10 industry groups that make up the Standard and Poor's 500 index losing more than 1 percent. Companies that have benefited from expectations of worldwide growth were especially hard hit. Caterpillar, Alcoa, and Boeing all lost more than 3 percent.
The discouraging reports join a host of other news that has dampened hopes for a strong economic recovery and helped knock the S&P 500 down 1.4 percent in May. Still-high gas prices, a continued housing market decline, weaker-than-expected GDP and tepid consumer confidence -- along with concerns about debt problems in Europe and the debt ceiling in the U.S. -- have all weighed on markets.
Companies reporting results were not spared from the broad market drop. General Motors fell 5 percent after it said U.S. sales weakened in May. The car maker sold 221,192 vehicles, down 1.2 percent from a year earlier. It cited a decision to cut sales to rental car companies for the drop. Ford Motor Co. lost 4.6 percent after reporting similar declines.
Dollar General Corp. fell 9.3 percent after the discount store operator's first-quarter profit growth fell short of analysts' expectations. JoS. A. Bank Clothiers Inc. also reported first-quarter profit growth below analysts' expectations. The men's clothing maker fell 13 percent.
Five stocks fell for every one that rose on the New York Stock Exchange. Consolidated volume came to 4.4 billion shares. The Dow is still up 6.2 percent for the year, the S&P 500 4.5 percent.
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