Stocks fall on bleak U.S. job report

Major stock indexes were down about 2 percent after the U.S. unemployment rate hit a 26-year high. European markets were also down following similarly disappointing data on unemployment in the 16 countries that use the euro currency.

Recession-weary employers in the U.S. cut 467,000 jobs in June, the Labor Department reported, far worse than the 363,000 that economists expected and a grim signal that the path to recovery will be bumpy.

The jobless rate, meanwhile, rose to 9.5 percent last month from 9.4 percent in May. Economists had predicted a rate of 9.6 percent.

In morning trading, the Dow Jones industrial average fell 162.26, or 1.9 percent, to 8,341.80. The Standard & Poor's 500 index declined 19.61, or 2.1 percent, to 903.72, while the Nasdaq composite index fell 42.71, or 2.3 percent, to 1,803.01.

Overseas markets also fell after a report showed unemployment in Europe rose to a 10-year high in May.

"This is part of the market recovery," said Roy Williams, CEO of Prestige Wealth Management. "You're going to get bad news." Williams predicted the unemployment rate is likely to reach 11 percent.

The Labor Department report, released Thursday, showed that even as the recession flashes signs of easing, companies likely will want to keep a lid on costs and be wary of hiring until they feel certain the economy is on solid ground.

June's payroll reductions were deeper than the 363,000 that economists expected and average weekly earnings dropped to the lowest level in nearly a year.

However, the rise in the unemployment rate from 9.4 percent in May wasn't as sharp as the expected 9.6 percent. Still, many economists predict the jobless rate will hit 10 percent this year, and keep rising into next year, before falling back.

All told, 14.7 million people were unemployed in June.

If laid-off workers who have given up looking for new jobs or have settled for part-time work are included, the unemployment rate would have been 16.5 percent in June, the highest on records dating to 1994.

"We were on the road of things getting less bad in the jobs market, and that has been temporarily waylaid," said economist Ken Mayland, president of ClearView Economics. "But this doesn't change my view that the recession will end later this year. We're probably two months away."

Since the recession began in December 2007, the economy has lost a net total of 6.5 million jobs.

As the downturn bites into sales and profits, companies have turned to layoffs and other cost-cutting measures to survive. Those include holding down workers' hours and freezing or cutting pay.

The average work week in June fell to 33 hours, the lowest on records dating to 1964.

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