Global economic growth continues to slow, data showed Thursday, as Europe's crisis deepens and the U.S. braces for a fiscal cliff-dive.
The four-week average of U.S. jobless claims rose to 386,250 in mid-June, the most since December and up 15,500 from mid-May, the Labor Department reported.
That points to further tepid job gains this month, perhaps even slower than May's 69,000.
In Germany, a broad gauge of economic activity from Markit Economics pointed to a possible contraction in Q2, fresh evidence that the eurozone's workhorse is sagging under the weight of the regional recession.
The global slowdown also is being felt in China, where factory-sector activity fell to a seven-month low in May as export orders hit a three-year low.
Stocks sold off on the raft of bad news, with the Nasdaq falling 2.4% and the S&P 500 2.2%.
The U.S. suffered soft patches in mid-2010 and mid-2011. Both times, hiring lulls were short-lived. But odds of a three-peat aren't looking great. The breadth and depth of the global slowdown, as well as greater uncertainty tied to the eurozone crisis and U.S. fiscal policy, raise the risk of a prolonged slowdown.
Federal Reserve Chairman Ben Bernanke has puzzled over whether recent weak hiring largely is payback for job gains during an unusually warm winter. The slow but steady rise in jobless claims suggests the answer is no.
The news isn't entirely gloomy. The plunge in oil prices will help consumers offset sluggish gains in wage income. Crude fell $3.25 on Thursday to $78.20 a barrel, the lowest close in a year.
Building permits for housing units reported this week rose 25% from a year ago in May, suggesting that housing is no longer a drag on the economy.
On the other hand, the Philadelphia Fed's regional manufactur ing survey showed 38.5% of firms reported decreasing activity in June vs. just 21.9% seeing an increase. Markit's preliminary reading of U.S. manufacturing activity showed continued growth in June, though at a slowing pace.
When job growth slowed in mid-2010, expectations of a new round of Fed quantitative easing helped buck up confidence. Financial markets also rallied on optimism that Republicans would win back the U.S. House. That election victory helped bring about the year-end deal cutting payroll taxes and extending tax cuts and jobless benefits.
Last year's slowdown was relieved in part by falling oil prices, more stimulus from the Fed and further actions in Europe to hold the currency zone together.
Confidence in euro area leaders' ability to solve the crisis has now been dashed so many times that further kick-the-can measures are unlikely to restore it.
Yet it's not clear which near-term development is less likely: Germany and its euro partners joining together in a tight union or Democrats and Republicans walking hand in hand down a fiscal path that avoids the Jan. 1 cliff.
"Uncertainty may weigh on business investment and employment growth through most of this year," wrote Barclays Capital economists.
And further central bank quantitative easing may provide limited relief. The Fed on Wednesday extended its Twist program, swapping its short-term Treasuries for longer maturities, but signaled that a new round of asset purchases could be ahead. Yet Bernanke told Congress two weeks ago that QE efforts may yield "diminishing returns" with rates already at historic lows.