Asian Stocks Drop as Jobs Report Adds to Growth Concern

By Adam Haigh - Jun 4, 2012 9:01 AM GMT+0700

Asian stocks fell after a U.S. payrolls report showed fewer jobs were added to the world’s largest economy than the most pessimistic forecast, adding to concern the global economy is slowing. Japan’s Topix Index is headed for its lowest closing level since 1983.

Sony Corp. (6758), a Japanese exporter of consumer electronics that gets about one fifth of its sales in the U.S., fell 1.4 percent. BHP Billiton Ltd. (BHP), the world’s biggest mining company, dropped 1.9 percent as metals prices declined. Cnooc Ltd. (883), China’s largest offshore oil producer, lost 3.6 percent as crude extended last week’s slump.

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June 4 (Bloomberg) -- Nick Maroutsos, co-founder of Sydney-based Kapstream Capital, talks about the outlook for global financial markets, the U.S. economy and his investment strategy. Maroutsos also discusses Europe's sovereign debt crisis. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

The MSCI Asia-Pacific Index dropped 2.1 percent to 109.01 as of 10:46 a.m. in Tokyo. The gauge tumbled 10 percent in May, the biggest monthly loss since October 2008, when global markets tumbled in the wake of the collapse of Lehman Brother Holdings Inc. Equities continued declines into June as the U.S. jobs report added to concern global growth is slowing and Europe’s debt crisis is worsening.

“People are more concerned about a return ‘of’ their capital, as opposed to a return ’on’ their capital,” said Nick Maroutsos, who oversees about A$3 billion ($2.9 billion) as managing director and co-founder of Sydney-based Kapstream Capital. “The recovery is still going to continue to have fits and starts. We need something more substantial” from central banks “that’s going to get investors back into the market. Until we get that, we’re not going to see risk assets perform well.”

Japan’s Topix fell 2.1 percent, below the lowest level seen during the 2008-2009 financial crisis and headed for its lowest close since December 1983. The gauge has fallen more than 20 percent from this year’s high on March 27, entering a so-called bear market. The Nikkei 225 Stock Average dropped 2.1 percent.

U.S. Payrolls

In Seoul, the Kospi index dropped 2.6 percent. Australia’s S&P/ASX 200 Index slid 1.7 percent and Hong Kong’s Hang Seng Index retreated 2.4 percent.

Futures on the Standard & Poor’s 500 Index lost 0.7 percent today. The index slumped 2.5 percent in New York on June 1 and the Dow Jones Industrial Average erased its 2012 gains after the jobs report.

U.S. payrolls climbed by 69,000 last month and the jobless rate rose to 8.2 percent. The Institute for Supply Management’s factory index fell after reaching a 10-month high.

“The poor U.S. payrolls number should start to deflate investor optimism about U.S. growth that we’ve encountered, leaving few places for investors to hide,” said Gerard Minack, global developed-market strategist at Morgan Stanley in Sydney.

Sony, Toyota

Sony fell 1.4 percent to 999 yen, dropping below 1,000 yen in Tokyo trading for the first time since 1980. Toyota Motor Corp., Asia’s biggest carmaker, retreated 3.6 percent to 2,903 yen. Honda Motor Co., the third-biggest, slid 2.7 percent to 2,392 yen and Nissan Motor Corp. declined 3.1 percent to 712 yen.

China’s non-manufacturing industries expanded at the slowest pace in more than a year as export orders declined and weakness in real estate countered strength in retailing and leasing, an official survey indicated.

The purchasing managers’ index fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in statements yesterday in Beijing. That’s the lowest reading since March 2011 when the federation started seasonally adjusting the data.

The Bloomberg China-US Equity Index of the most-traded Chinese companies in the U.S. tumbled 3.4 percent to 87.22 on June 1 in New York, the biggest slump since Nov. 21.

Metals, Oil

The London Metal Exchange Index of prices for six industrial metals including copper and aluminum dropped 0.8 percent on June 1 and the Thomson Reuters/Jefferies CRB Index of raw materials slumped 1.7 percent.

BHP Billiton lost 1.9 percent to A$31.13. Rio Tinto Group, the world’s third- largest mining company, declined 3.3 percent to A$53.71.

Oil dropped for a fifth day, trading at the lowest level in almost eight months. Crude for July delivery fell as much as 0.8 percent lower in electronic trading on the New York Mercantile Exchange after falling 8.4 percent last week.

Cnooc lost 3.6 percent to HK$13.24. Woodside Petroleum Ltd. (WPL), Australia’s second-largest oil producer, retreated 3 percent to A$30.99.

Declines in the equity market has dragged valuations on the Asian benchmark down to 11.4 times estimated earnings on average through June 1, compared with 12.2 times for the S&P 500 and 9.8 times for the Stoxx 600.

To contact the reporter on this story: Adam Haigh in Sydney at ahaigh1@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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Spain Seeks Joint Bank Effort as Pressure Rises on Merkel

By Patrick Donahue - Jun 4, 2012 5:01 AM GMT+0700

Spanish Prime Minister Mariano Rajoy said European leaders should reinforce efforts to protect euro- area banks, ratcheting up pressure on German Chancellor Angela Merkel to back new ideas for a resolution of the debt crisis.

With markets bracing for further deterioration in Spain’s finance sector and a possible Greek departure from the 17-member euro area, Rajoy on June 2 added his voice to calls for a more robust “banking union” in Europe, lending his support for a centralized system to re-capitalize lenders. On the same day, Merkel toughened her opposition to euro-area debt sharing, telling members of her party in Berlin that “under no circumstances” would she agree to German-backed euro bonds.

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Angela Merkel, Germany's chancellor. Photographer: Michele Tantussi/Bloomberg

“The EU needs to reinforce its common institutional architecture so that investors regain confidence in the single currency,” Rajoy said in the Spanish coastal town of Sitges near Barcelona. “Spain will emerge from the storm through its own efforts and with the support of our European partners.”

As euro-area unemployment reached its highest level on record, manufacturing output contracted for a 10th straight month in May and the currency plunged close to a two-year low against the U.S. dollar, leaders continued to wrangle over the details of support for the currency bloc. President Barack Obama meanwhile laid the blame for sluggish U.S. employment at the feet of euro-area leaders, saying they haven’t done enough to resolve the crisis, now in its third year.

Bailout Pressure

Merkel’s isolation was underlined yesterday by the new French Finance Minister Pierre Moscovici, who said that aid for troubled European banks should come through the European Stability Mechanism rather than through governments. “We need to go toward a banking union,” Moscovici said on RTL radio.

Any request for bank aid must be made by sovereign states, Norbert Barthle, budget spokesman for Merkel’s Christian Democrats in parliament, said in a May 29 interview, citing the need for national governments to act as guarantors.

Merkel and Finance Minister Wolfgang Schaeuble have urged Rajoy to accept an international bailout, Der Spiegel magazine reported, without saying where it obtained the information. Spain’s El Pais said yesterday that the European Union is also pressing Spain to accept funds, citing unidentified officials in Brussels. Merkel’s chief spokesman Steffen Seibert and a Spanish government official declined to comment on the reports.

‘Future of Europe’

Cyprus, the bloc’s third-smallest economy, is also increasingly likely to seek a bailout if recapitalization efforts for Cyprus Popular Bank’s fail, ECB Governing Council member Panicos Demetriades said yesterday. Greece, Ireland and Portugal have already received assistance.

Billionaire investor George Soros, speaking yesterday in Trento, Italy, said that European leaders, foremost among them Merkel, have a three-month window in which to “correct their mistakes and reverse the current trends.”

“We need to do whatever we can to convince Germany to show leadership and preserve the European Union as the fantastic object that it used to be,” Soros said. “The future of Europe depends on it.”

Yields on German two-year notes fell below zero for the first time ever last week as investors fled riskier sovereign debt. Spanish bonds dropped for a fourth week, pushing the country’s 10-year yields above 6.5 percent -- nearing the 7 percent threshold which triggered the three earlier bailouts.

‘Cede Sovereignty’

Struggling to shore up confidence in Spain’s banking industry, Rajoy urged euro-area nations to “cede more sovereignty” to a central fiscal authority and endorsed the European Commission’s call for a banking union that would entail a single regulator and a deposit-guarantee fund.

Such a union, comprising a central rescue fund for lenders and centralized deposit guarantees, would only emerge “at the end of a long path,” Bundesbank Vice President Sabine Lautenschlaeger told the June 2 edition of Frankfurter Allgemeine Zeitung.

The shared risk implied by a supranational euro fund “can only be a success in a fiscal union with central controls and intervention rights,” Lautenschlaeger told the newspaper.

Facing down criticism that Germany needs to relent in its opposition to a range of proposals from jointly issued debt to channeling funds to banks, Merkel added nuance to her position on centralized controls last week by welcoming a set of Commission proposals calling for such measures and referring to “possibilities for greater cooperation.” The German leader meets European Commission President Jose Barroso in Berlin today.

‘New Possibilities’

“We could certainly make clearer to international financial markets what’s going on in Europe in terms of new institutions and new possibilities in order to relieve the concern that perhaps banks are unstable,” Merkel told reporters in Stralsund, Germany, on May 31, following a reference to banking insurance. She added that certain changes would require treaty amendments and suggested a time line of “five to 10 years.”

The chancellor’s hard line on debt sharing has been challenged by Italian Prime Minister Mario Monti, who told Greece’s To Vima yesterday that euro bonds will occur in some form. Monti will host a meeting with Merkel, Rajoy and French President Francois Hollande in Rome on June 22, ahead of the next EU summit at the end of the month.

Euro Break-Up

Those meetings take place after Greece holds its second election in as many months on June 17, with polls signaling a risk that no party will win an absolute majority. The possibility that a coalition supporting the European bailout package will again fall short has stoked speculation that the country could leave the monetary union and fragment a bloc designed to be unbreakable.

As crisis-resolution talks continue, Obama has become more vociferous in his call to action, with the impact of Europe’s troubles increasingly cited beyond the EU’s borders. The U.S. president said on June 1 that the slowest month of employment growth in a year was partly “attributable to Europe and the cloud that’s coming over from the Atlantic.”

Obama dispatched Lael Brainard, Treasury undersecretary for international affairs, to Europe last week for a three-day visit for talks with officials overseeing the crisis. She traveled to Athens, Madrid, Paris, Frankfurt and Berlin.

“Europe is having a significant crisis in part because they haven’t taken as many of the decisive steps as were needed to deal with the challenge,” Obama said in Minneapolis.

To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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China’s Non-Manufacturing Industries Grow at Slower Pace

By Bloomberg News - Jun 4, 2012 7:58 AM GMT+0700

China’s non-manufacturing industries expanded at the slowest pace in more than a year, as export orders declined and weakness in real estate countered strength in retailing and leasing, an official survey indicated.

The purchasing managers’ index fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. That’s the lowest reading since March 2011 when the federation started seasonally adjusting the data.

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Non-manufacturing industries, including construction, account for about 40 percent of China's economy. Photographer: Nelson Ching/Bloomberg

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June 4 (Bloomberg) -- Alistair Thornton, a Beijing-based economist with IHS Global Insight, talks about the outlook for China's economy and central bank monetary policy. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

The report adds to evidence of slower growth in the world’s second-biggest economy as Europe’s debt crisis crimps overseas demand and government curbs on real estate feed through to more industries. A Chinese manufacturing index had the weakest reading in five months in May, federation data last week showed, helping push Brent crude below $100 a barrel for the first time in almost eight months.

“The data reinforce the message that the slowdown has spread from the manufacturing sector to the services sector,” said Tim Condon, chief Asia economist at ING Financial Markets in Singapore. “The current slowdown is more complicated to read than the 2008 global financial crisis and is stressing the authorities’ vaunted fine-tuning skills.”

Service industries now account for 43 percent of the economy, the federation said in yesterday’s statement. That compares with almost 90 percent in the U.S. Under China’s current five-year plan, the government aims to raise the share of services in gross domestic product to 47 percent by 2015, according to a Xinhua news agency report on May 28.

Government Support

U.S. and European (SXXP) stocks fell for the fourth week in five as weaker-than-estimated manufacturing output in the U.S. and China plus record unemployment in the euro area heightened concerns the global economy is slowing.

The benchmark Shanghai Composite Index rose for the first time in four weeks on speculation the government will take steps to boost the economy after a manufacturing PMI compiled by the statistics bureau and logistics federation expanded at the slowest pace since December.

The 50.4 reading for May was barely above the 50 mark that divides expansion from contraction and compared with a 52.0 median estimate in a Bloomberg News survey of 27 economists. A separate gauge from HSBC Holdings Plc and Markit Economics released the same day showed a seventh straight contraction, the longest since the global financial crisis.

Weak Momentum

The manufacturing surveys present “clear signs of weak economic growth momentum,” China International Capital Corp. analysts led by Beijing-based Peng Wensheng said in a June 1 note. “The National Development and Reform Commission has recently expedited project approvals but whether this can effectively stabilize investment and GDP growth still depends on monetary and credit policies.”

The economists forecast two to three more cuts in banks’ reserve requirements this year and estimate a reduction in benchmark lending rates is likely “in the near term.”

Premier Wen Jiabao and the State Council, or Cabinet, warned last month that the economy faces increasing downward pressure. They pledged to put a greater focus on growth and “actively” raise domestic demand.

The government announced new subsidies to boost sales of energy-saving household appliances including refrigerators and washing machines after the expiry of a previous program last year. Gome Electrical Appliances Holding Ltd. (493), China’s second- biggest electronics retailer, said May 25 its first-quarter net income slumped 88 percent from a year earlier as the end of the incentives led to a drop in consumer demand.

Growth Slowdown

The government is also stepping up approvals for infrastructure and corporate investment projects to counter the economic slowdown that Credit Suisse Group AG estimates will push growth down to 7 percent or “slightly below” this quarter compared with a year earlier. Expansion moderated to 8.1 percent in the first three months of the year, the fifth straight quarterly slowdown.

The National Development and Reform Commission said on May 25 it gave Baosteel Group Corp., the parent of China’s largest listed steelmaker, approval for an $11 billion plant more than seven years after the project was conceived.

Inflation indicators in both the non-manufacturing and manufacturing PMIs declined in May, giving policy makers more room to implement stimulus to combat the slowdown. Consumer prices rose 3.4 percent in April from a year earlier, below the government’s 4 percent target for 2012 for the third month.

‘Obvious’ Decline

A gauge of input prices in yesterday’s survey fell to 53.6 from 57.9 in April, while an index measuring prices charged for goods contracted, showing a below-50 reading for the first time this year, according to a statement from the statistics bureau. The official manufacturing PMI showed input prices contracting for the first time since December.

The “obvious” decline in prices “could take some pressure off inflation,” Cai Jin, a federation vice chairman, said in a statement.

The non-manufacturing PMI is based on a survey of about 1,200 companies covering 27 industries including construction, transport and telecommunications. The federation and statistics bureau started publishing a seasonally adjusted index for the non-manufacturing PMI from the March survey, and revised readings back to March 2011.

A separate services industries gauge will be released by HSBC and Markit tomorrow.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net; Bloomberg News in Beijing at xzhou68@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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AIG Chief Sees Retirement Age as High as 80 After Crisis

By Boris Cerni and Zachary Tracer - Jun 4, 2012 5:00 AM GMT+0700

American International Group Inc. (AIG) Chief Executive Officer Robert Benmosche said Europe’s debt crisis shows governments worldwide must accept that people will have to work more years as life expectancies increase.

“Retirement ages will have to move to 70, 80 years old,” Benmosche, who turned 68 last week, said during a weekend interview at his seaside villa in Dubrovnik, Croatia. “That would make pensions, medical services more affordable. They will keep people working longer and will take that burden off of the youth.”

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American International Group Inc. Chief Executive Officer Robert Benmosche speaks during an interview at his villa in Dubrovnik. Photographer: Gianluca Colla/Bloomberg

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American International Group Inc. Chief Executive Officer Robert Benmosche speaks during an interview at his villa in Dubrovnik. Photographer: Gianluca Colla/Bloomberg

The crisis, now in its third year, threatens to destroy Europe’s 17-nation currency union as Greece contemplates exiting the euro and Spain sees its bond yields rise and banking industry falter. German Chancellor Angela Merkel hardened her opposition to joint debt sharing in the euro region as U.S. President Barack Obama singled out Europe’s leaders for not doing enough to arrest the crisis.

Greece abandoning the euro could be a disaster for the country and Europe must work to keep that from happening, said Benmosche, whose company was the world’s biggest insurer before it took a U.S. bailout.

“People in Greece have to see there is no easy way out of this” and the government must get them to work longer, he said in the June 2 interview on the Adriatic coast. “If not, and if they go to their own currency, I think they will see huge inflation and it will be devastating for people on fixed incomes.”

Life Expectancy

Greece, where the average life expectancy is 81.3 years, has an effective retirement age of 59.6, among the lowest in Europe, according to data compiled by Bloomberg. French President Francois Hollande, the Socialist who was sworn in last month, has pledged to cut the retirement age to 60 from 62 while increasing corporate and bank taxes and introducing a 75 percent levy on earnings of more than 1 million euros ($1.2 million).

Peter Hancock, CEO of AIG’s Chartis property-casualty unit, said last week the insurer has assigned staff from Argentina to advise their counterparts in Athens as the company prepares for a possible Greek exit from the euro, with the common currency at its lowest against the U.S. dollar since June 2010. Argentina defaulted on a record $95 billion of debt in 2001 and later abandoned a decade-long 1-to-1 peso peg to the greenback.

“We have gone through the crisis in Argentina and other countries over time, so we have experience there,” Benmosche said.

Taxpayer Rescue

Benmosche has sold non-U.S. life insurers, a consumer lender and other businesses to pay back its taxpayer rescue, which swelled to $182.3 billion as the U.S. extended more credit and lowered the interest charged. The Treasury Department has cut its stake to 61 percent from 92 percent through three share sales totaling about $17.6 billion. In the most recent two, AIG bought back a total of $5 billion in stock.

AIG still seeks to divest its plane-leasing unit and sell its remaining stake in Hong Kong-based insurer AIA Group Ltd.

“The overhang from the government’s ownership interest in AIG is in the process of going away,” Paul Newsome, an analyst at Sandler O’Neill & Partners LP, wrote in a May 30 research note. “AIG should have sufficient enough capital to facilitate the Treasury Department’s exit.”

Treasury raised $5.8 billion in the first offering in 2011, selling for $29 a share. At the same time, AIG sold 100 million shares for $2.9 billion to demonstrate access to the capital markets and satisfy a condition of its bailout. The insurer bought half of the $6 billion in stock the department divested at $29 apiece in March and $2 billion of a $5.75 billion offering that went for $30.50 a share in May. The government needs to average $28.72 to break even on its investment.

Lack Confidence

AIG slid 6.8 percent on June 1 to close the week at $27.21 after U.S. employers created the fewest jobs in a year and the nation’s jobless rate rose to 8.2 percent. Reports also showed manufacturing grew less than estimated in the U.S. and China, and contracted for a 10th month in the euro region.

Benmosche said people and businesses in the U.S. lack confidence and are hesitant to invest as financial regulation and tax policies remain unsettled.

“I am optimistic that we’ll continue to grow, and if we get past this period of uncertainty and gain confidence again in the U.S. economic system, that will help lead the world out of the situation we are in today.”

To contact the reporters on this story: Boris Cerni in Ljubljana at bcerni@bloomberg.net; Zachary Tracer in New York at Ztracer1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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Hon Hai-Sharp Alliance Tested by Plunge in TV Maker Share Price

By Tim Culpan and Mariko Yasu - Jun 4, 2012 4:00 AM GMT+0700

Hon Hai Precision Industry Co. (2317), the assembler of Apple Inc. iPads, may seek to renegotiate a planned 133 billion-yen ($1.7 billion) alliance with Sharp Corp. (6753) after the Japanese TV maker’s shares fell to the lowest in 34 years.

Hon Hai agreed to buy 9.9 percent of Sharp, Japan’s largest maker of liquid-crystal displays, for 550 yen per share. Sharp shares have plunged 29 percent below that to 391 yen, meaning if the deal closed today at the agreed price, Hon Hai would have a paper loss of $247 million, equal to 49 percent of the Taipei- based manufacturer’s net income last quarter.

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An employee of Hon Hai Precision Industry Co. Ltd. works on a production line in Shenzhen, China. Hon Hai, flagship of the Foxconn group, and its affiliates will buy 121.65 million new shares in Sharp at 550 yen each, Sharp and Hon Hai said March 27. Gou and related companies will buy 46.5 percent in Sharp Display, a venture with Sony Corp., they said the same day. Photographer: Thomas Lee/Bloomberg

“With the current stock price, Hon Hai won’t be willing to pay that much, and given Hon Hai has more say in this alliance than Sharp, the Taiwanese company may request a review,” said Takashi Watanabe, an analyst at Goldman Sachs Group Inc.

Sharp fell to its lowest level since 1978 after the Osaka- based company forecast a wider-than-expected annual loss for the current fiscal year because of its unprofitable solar, panel, and audiovisual and communications divisions. Sharp Display Products Corp. is counting on a separate 66 billion-yen tie-up with Terry Gou, whose Foxconn Technology Group includes Hon Hai, and related investment companies to return to profitability.

Simon Hsing, the spokesman for Hon Hai, said the company remains committed to the deal, and he declined to comment on whether it would seek to renegotiate terms, including the price.

Gou’s Investment

“This is the most important deal we’ve had recently to realize our goal of greater vertical integration in the supply chain,” Hsing said. “We worked on it for nine months and plan to proceed.”

Sharp “currently doesn’t have a plan to change the price,” Miyuki Nakayama, a spokeswoman for the Tokyo-based company, said by phone.

Hon Hai, flagship of the Foxconn group, and its affiliates will buy 121.65 million new shares in Sharp at 550 yen each, Sharp and Hon Hai said March 27. Gou and related companies will buy 46.5 percent in Sharp Display, a venture with Sony Corp. (6758), they said the same day.

The alliance would give Hon Hai access to advanced display as the Taiwanese manufacturer looks to expand beyond assembly.

Sharp’s shares, which reached a 34-year low of 366 yen on May 21, rose on May 24 after Hon Hai said it may build a display factory with the Japanese company in Chengdu, China.

Sony Stake

Gou’s and Sharp’s stakes in Sharp Display will be diluted to 37.61 percent each after Sony said May 24 it will sell its entire 7.04 percent holding to the display unit by June 30, and Toppan Printing Co. (7911) and Dai Nippon Printing Co. said they would merge their operations at Sakai, Japan, with the display maker, giving them a 9.54 percent stake each.

“Hon Hai should try to renegotiate the price, because the loss on the value of the stake and capital expenditure to Sharp won’t be good for them in the short term,” said Laura Chen, a Taipei-based analyst at BNP Paribas SA who downgraded the stock to hold last week and cut her share-price estimate by 16 percent.

“In the long term, Hon Hai still wants the deal because Sharp has strong technology in panels, solar and electronics components.”

Hon Hai’s second-quarter earnings per share may fall 61 percent from the prior period partly because of the decline in Sharp’s share price, KC Kao, who rates the stock buy at Deutsche Bank AG in Taipei, wrote in a May 21 report. The investment and the Japanese company’s financial situation also increase the risk Hon Hai will need to raise funds, he wrote.

Capital Injection

Based on the May 21 closing price of 366 yen, Hon Hai would realize a loss of NT$6.3 billion ($213 million) on the Sharp stake, Kao wrote. BNP’s Chen estimates the loss for this period would be at least NT$5 billion if the transaction value remains unchanged.

The amount of capital injection needed by Sharp, coupled with a likely desire by Hon Hai to limit its equity exposure to the Japanese company, reduces the scope for them to renegotiate the deal, said Steve Myers, who rates Hon Hai sell at JI Asia in Tokyo. The two sides have until March to close the transaction, and there’s no immediate need to model for Sharp’s share-price declines in Hon Hai income statements because the deal hasn’t been completed, he said.

Seven Visits

Gou has traveled to Japan seven times since the deal was announced, Hon Hai’s Hsing said, an indication of the importance he places on the transaction. The Foxconn chairman also plans to proceed with his own investment in Sharp Display, Hsing said.

“The deal with Sharp is not just about panels,” Hsing said. “They have many different products that are of interest to us.”

Sharp on April 27 forecast a net loss of 30 billion yen for the year ending March 31, 2013, wider than the 7.6 billion yen average loss forecast of 23 analyst estimates compiled by Bloomberg. The LCD and solar businesses may contribute 10 billion yen in losses each, while the communications equipment and audio-visual unit may lose about 5 billion yen, Sharp said.

Sharp has 20 billion yen of bonds maturing in June and about 200 billion yen of convertible bonds maturing in September 2013, according to data compiled by Bloomberg. The company’s cash and near cash stood at 195.3 billion yen as of March 31, a drop of 19 percent from a year earlier.

A decreasing cash balance and forecasts for continuing losses may put Sharp in a weak position to refuse renegotiation, the Tokyo-based Watanabe said.

“I’m not so certain the March agreement will survive as it is,” said Shiro Mikoshiba, an analyst at Nomura Holdings Inc. in Tokyo. “There are also the uncertainties over Sharp’s earnings outlook that makes it unclear whether now is the right time to invest in Sharp.”

To contact the reporters on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net; Mariko Yasu in Tokyo at myasu@bloomberg.net.

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net.

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Sony Drops Below 1,000 Yen, First Time Since 1980: Tokyo Mover

By Mariko Yasu - Jun 4, 2012 7:36 AM GMT+0700

Sony Corp. (6758) dropped below 1,000 yen in Tokyo trading for the first time since 1980, when the Walkman was new, after Japan’s currency gained and U.S. economic data added to concerns the global economy is slowing.

The shares fell as much as 2.3 percent to 990 yen and traded at 1,000 yen ($12.80) as of 9:25 a.m. on the Tokyo Stock Exchange. Sony, which recorded an all-time intraday high of 16,950 yen in March 2000, last traded below 1,000 yen on Aug. 7, 1980, according to data compiled by Bloomberg.

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Kazuo Hirai, president and chief executive officer of Sony Corp. Photographer: Tomohiro Ohsumi/Bloomberg

Sony, a trendsetter in the 1980s with the music player and the first compact-disc player, has posted four straight annual losses as it failed to come up with hit products and the yen surged, while consumers flocked to devices made by Apple Inc. and Samsung Electronics Co. Japan’s currency gained against all 16 major counterparts last week, rising to the highest level against the euro in more than 11 years.

Sony, Japan’s biggest exporter of consumer electronics, extended a 28-percent drop this year amid concerns the U.S. recovery is faltering while growth slows in China and Europe’s debt crisis worsens. U.S. payrolls climbed by 69,000 last month, less than the most-pessimistic forecast in a Bloomberg News survey, Labor Department figures showed June 1 in Washington.

Japan’s currency reached 95.60 against the euro last week, the strongest since Nov. 30, 2000, and touched 77.66 against the U.S. dollar on June 1, the highest since Feb. 14, as investors sought haven assets.

Record Loss

Chief Executive Officer Kazuo Hirai has already presided over a 42 percent decline in Sony’s market value since starting in the job on April 1. The 51-year-old executive took over from Howard Stringer after the maker of Bravia televisions posted a record loss last fiscal year, when Japan’s strongest earthquake and floods in Thailand crippled plants, while attacks by hackers disrupted Sony’s online entertainment network.

Sony posted a record 457 billion-yen loss in the year ended March. Its main television operation lost about 700 billion yen over the past eight years amid falling prices for TVs and competition from South Korea’s Samsung and LG Electronics Inc. The Tokyo-based company’s run of four straight full-year losses is the worst since Sony was listed in 1958.

Worth $125 billion in March 2000, Sony is now valued at less than $13 billion, compared with $525 billion for Cupertino, California-based Apple Inc. (005930) and $150 billion for Suwon, South Korea-based Samsung Electronics Co.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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China’s Non-Manufacturing Industries Grow at Slower Pace

By Bloomberg News - Jun 3, 2012 8:49 AM GMT+0700

China’s non-manufacturing industries grew at a slower pace for a second month, as export demand moderated and new orders in construction and real estate contracted, an official survey indicated.

The purchasing managers’ index fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in a statement today in Beijing. A reading above 50 indicates expansion.

Today’s data adds to evidence that growth in the world’s second-biggest economy is slowing after a government manufacturing report showed the weakest reading since December. Brent crude tumbled below $100 a barrel on June 1 for the first time in almost eight months on concern that China’s industrial expansion is moderating and unemployment in the U.S. is rising.

“Although the index fell slightly in May, it was still at a relatively high level of 55.2 which is in line with the general trend of steady growth in non-manufacturing industries,” Cai Jin, a federation vice chairman, said in the statement. “Market demand remains steady and reflects the structural changes in our country’s economy.”

A manufacturing PMI compiled by the statistics bureau and logistics federation fell to 50.4 in May from 53.3 in April, a June 1 report showed. The reading, barely above the 50 mark that divides expansion from contraction, was the lowest in five months and compares with a 52.0 median estimate in a Bloomberg News survey of 27 economists.

Manufacturing Contracted

A separate gauge from HSBC Holdings Plc and Markit Economics released the same day showed a seventh straight contraction, the longest since the global financial crisis.

The federation’s non-manufacturing PMI is based on a survey of about 1,200 companies covering 27 service industries including construction, telecommunications and leasing. Non- manufacturing industries account for about 40 percent of the economy, according to the agency.

The federation started publishing a seasonally adjusted index from its March survey, and revised readings back to March 2011. A separate gauge for services industries will be released by HSBC and Markit on June 5.

--Zhou Xin, Liza Lin. Editors: Nerys Avery, Jim McDonald.

To contact the reporter on this story: Bloomberg News in Beijing at xzhou68@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Mobile-Phone Makers End Deadlock on Standard for New SIM Cards

By Francois de Beaupuy - Jun 2, 2012 6:50 PM GMT+0700

Mobile-phone makers agreed on a new standard for smaller SIM cards, overcoming a deadlock in which Finland’s Nokia Oyj (NOK1V) and Apple Inc. (AAPL) had competing proposals.

The so-called “fourth form factor” will be 40 percent smaller than the current smallest SIM card design, the European Telecommunications Standards Institute said in a statement on its Web site, following a meeting held May 31 and June 1 in Osaka, Japan. “It can be packaged and distributed in a way that is backwards compatible with existing SIM card designs.”

ETSI agreed to pick Apple’s SIM card standard, beating a proposal from Nokia, MacWorld said on its website, citing cardmaker Giesecke & Devrient. Spokespersons for ETSI and Nokia couldn’t immediately be reached for comment.

In March, a two-day meeting to adopt a format from competing proposals by Apple and Nokia finished without reaching a decision. The smartcards that identify wireless subscribers are standardized to reduce industry costs and give consumers freedom to switch handsets and networks. Smaller versions permit the design of thinner phones.

To contact the reporters on this story:

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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Fed Will Likely Weigh Rosengren’s Call for Stimulus

By Joshua Zumbrun and Jeff Kearns - Jun 2, 2012 11:00 AM GMT+0700

Some Federal Reserve policy makers may join Boston Fed President Eric Rosengren in backing new stimulus at a meeting this month after unemployment rose to 8.2 percent in May, economists said.

Rosengren said the Fed should further its full-employment mandate and extend beyond June a program known as Operation Twist, which lengthens the average duration of bonds on its balance sheet. He spoke before a report yesterday showed the U.S. added 69,000 jobs in May, the fewest in a year, pushing the yield on 10-year Treasury notes to a record low.

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Eric Rosengren, president of the Federal Reserve Bank of Boston. Photographer: Brendan Hoffman/Bloomberg

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June 1 (Bloomberg) -- Dean Maki, chief U.S. economist at Barclays Plc, Daniel Fuss, vice chairman at Loomis Sayles & Co., and Matthew McLennan, portfolio manager at First Eagle Funds, talk about the outlook for another round of quantitative easing by the Federal Reserve and the U.S. economy. They speak with Betty Liu and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

“The May report does significantly raise the odds of further easing from the Fed,” said Dean Maki, New York-based chief U.S. economist at Barclays Plc and a former Fed economist. “There will be a case made at the June meeting for easing.”

Rosengren’s stimulus call aligns with the view of Chicago Fed President Charles Evans. Any job market setback is also a chief concern of Chairman Ben S. Bernanke, who said in April the Fed may provide more accommodation should unemployment fail to make “sufficient progress towards its longer-run normal level.” Fed policy makers plan to meet June 19-20.

Yesterday’s report from the Labor Department “does change the game, certainly in terms of Operation Twist,” said John Silvia, chief economist at Wells Fargo & Co. in Charlotte, North Carolina. “Because the slowdown in the economy has been fairly rapid compared to what they expected, they’ll go ahead and extend Operation Twist.”

Stocks Slump

The yield on the 10-year Treasury note closed at a record low 1.45 percent yesterday, from 1.56 percent on May 31. The yield fell to as low as 1.4387 percent. The Standard & Poor’s 500 Index tumbled 2.5 percent to 1,278.04 in the steepest retreat since November.

Rosengren said low interest rates are not a barrier to further Fed action, and that more easing could help reduce the borrowing costs for types of debt other than Treasuries, including mortgages.

Paul Ashworth, chief U.S. economist for Capital Economics in Toronto, said further Fed stimulus may spur stocks by encouraging investors to seek higher-yielding assets.

“It’s not just about whether it’s going to drive Treasury yields lower, it’s about whether it can provide a boost to other riskier asset classes, including equities,” Ashworth said.

The central bank started Operation Twist in September to reduce longer-term interest rates without expanding its balance sheet. Under the program, the Fed sold $400 billion of Treasury securities with maturities of three years or less and used the proceeds to buy $400 billion of Treasuries with maturities of six years or more.

Fed Leadership

The Fed’s leadership will probably detail its outlook next week, with Vice Chairman Janet Yellen scheduled to speak on monetary policy in Boston on June 6 and Bernanke planning to testify before Congress on the economy on June 7.

The Fed has two options should it decide to take further action with its balance sheet, said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. It could renew Operation Twist by selling more of its short-term debt and buying more longer-term securities, or it could buy more bonds in a third round of quantitative easing.

Rosengren said in a Bloomberg News interview that he supports the option of extending Operation Twist at the Fed’s June meeting. Another round of quantitative easing would be an option if the Fed wanted to do something “more substantial,” he said.

‘Promote Growth’

“If you were looking for something that would promote growth but didn’t have an impact on our balance sheet, then certainly extending the maturity extension program would be a viable way forward,” Rosengren said. Such a move “would be a positive step that would provide some additional support to the economy and hopefully promote somewhat more rapid growth overall.”

Signs of weakness in the U.S. economy, and the debt crisis in Europe, also have increased the odds the Fed will ease further, Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said in a note.

“The loss of momentum in the domestic economy and the gathering global storm raise the likelihood of further policy easing at the next meeting,” he said.

The economy has not had two consecutive months of jobs growth under 100,000 since July and August of 2011, a period that prompted the Fed to begin Operation Twist.

“It’s close to a game-changing report,” said Capital Economics’ Ashworth. “We’re not quite at that level of desperation as last summer, but we’re getting pretty close, particularly when you think about the deterioration elsewhere in the world.”

To help reduce unemployment and spur the economy, the Fed cut its benchmark interest rate to near zero in December 2008 and purchased $2.3 trillion of securities in two rounds of large-scale asset purchases.

To contact the reporters on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

Jeff Kearns in Washington at jkearns3@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net

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Merkel Rejects Debt Sharing as Obama Urges End to Crisis Cloud

By Brian Parkin and Ben Sills - Jun 3, 2012 5:00 AM GMT+0700

German Chancellor Angela Merkel hardened her opposition to joint debt sharing in the euro region as President Barack Obama singled out Europe’s leaders for not doing enough to arrest the financial crisis.

With Europe’s debt crisis cited last week for canceled IPOs, weaker-than-expected Chinese manufacturing figures and a rise in the U.S. jobless rate, Merkel rejected joint debt issuance in the 17-nation euro area as a solution, saying “under no circumstances” would she agree to Germany-backed euro bonds.

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German Chancellor Angela Merkel at the 2012 Council of Baltic Sea States Summit. Photographer: Sean Gallup/Getty Images

Now, some “come along and ask for euro bonds, saying all we need are equal interest rates and everything will turn out all right,” Merkel said in a speech to members of her Christian Democratic Union in Berlin yesterday. Instead, what’s needed is an economic overhaul to tackle the lack of competitiveness in Europe, she said.

Merkel, the head of Europe’s biggest economy and the largest contributor to bailouts for Greece, Portugal and Ireland, is the pivotal player in efforts to resolve the crisis now in its third year. As Spain struggles to avoid becoming the next country to call for a rescue and the euro slides near a three-year low against the dollar, Obama added to pressure from the European Central Bank, France and Italy to do more to halt the spread of contagion.

European ‘Cloud’

Obama, speaking at a Chicago fundraiser on June 1 as he bids for re-election in November, said that a report showing the slowest month of U.S. employment growth in a year was in large part “attributable to Europe and the cloud that’s coming over from the Atlantic.” The “whole world economy has been weakened by it,” he said.

“Europe is having a significant crisis in part because they haven’t taken as many of the decisive steps as were needed to deal with the challenge,” he said at a separate event in Minneapolis.

The president’s point person for the European crisis, Lael Brainard, Treasury undersecretary for international affairs, ended a three-day tour of Europe’s crisis capitals the same day as work continued on erecting a financial firewall to stem contagion. The European Union is targeting July 9 as the start date for its permanent rescue fund, the 500 billion-euro ($620 billion) European Stability Mechanism, an EU official said.

Spanish Storm

Brainard held closed-door meetings with government officials in Athens, Madrid, Paris, Frankfurt and Berlin in a week when investors flocked to the perceived safety of German and U.S. bonds. The euro fell against the dollar and dropped to an 11-year low against the yen as uncertainty over the outcome of Greek elections on June 17 shifted to take in Spain, where Prime Minister Mariano Rajoy’s government is struggling to shore up banks amid a recession.

Merkel and Finance Minister Wolfgang Schaeuble are urging Rajoy to take an international bailout since Spain cannot solve its banking woes alone, German news magazine Der Spiegel reported yesterday in an advance copy of an article in this week’s edition, without citing a source for the information. Steffen Seibert, Merkel’s chief spokesman, declined to comment on the report when contacted by telephone.

Spain “will emerge from the storm under its own efforts and with the support of our European partners,” Rajoy said in a speech yesterday in Sitges, near Barcelona, calling on analysts and investors to moderate “irrational” views of Spain’s financial situation. “We are not on the edge of a precipice.”

Negative Yields

Spanish 10-year yields ended the week at 6.51 percent, approaching the 7 percent level that triggered previous euro- area bailouts, though below a euro-era record of 6.78 percent on Nov. 17. Germany’s equivalent 10-year bund rate was at 1.17 percent after reaching 1.127 percent, the lowest since Bloomberg began collecting the data in 1989. German two-year yields slid below zero for the first time.

Irish backing for Europe’s fiscal pact failed to halt a decline in European stocks for the fourth week in five, with the Stoxx Europe 600 (SXXP) Index dropping 3.1 percent to 235.09. The benchmark measure has plunged 14 percent from this year’s high on March 16.

Merkel lauded Rajoy’s efforts “for the first time to undertake sweeping labor market reforms,” tackle the real- estate crisis and address Spanish banks, where she said the situation is “fragile.”

“That’s why it’s important to create transparency quickly over what that means for the banks, what the situation is for recapitalization,” she said. Germany and Spain are in close contact over those efforts “as we must tackle the problems of the past and start the future with a clean slate.”

Italian Critics

The German chancellor, who was besieged over her crisis- fighting policy last week by Italian Prime Minister Mario Monti and ECB President Mario Draghi, took aim at Italy as she cited a “missed opportunity” offered by the euro’s introduction for Europe to overhaul uncompetitive economies. The cheaper borrowing that came with the euro meant “countries like Italy became virtually on a par with Germany in terms of interest rates,” she said.

Now “what we have is a situation that we didn’t want,” Merkel said. “The freedom created by this situation wasn’t exploited to improve long-term competitiveness. Instead, the time was used to spend too much money in consumption and too little time in tackling reforms.”

Greece Endgame

In Greece, where the crisis first emerged in late 2009, Alexis Tsipras, head of the biggest anti-bailout party, Syriza, appealed to voters on June 1 to give him the power to cancel the terms of the country’s international bailout, including economic reforms. Moody’s Investors Service lowered Greece’s highest possible credit rating, saying there was an increasing risk Greece may exit the euro region.

Greece is reaching an endgame regardless of the election outcome, Germany’s best-selling Bild newspaper said, underscoring the domestic pressure facing Merkel over her crisis response.

Greece “is unravelling,” and ever-more aid cannot deliver the new beginning that Greece needs, Nikolaus Blome, Bild’s chief political columnist, said in an editorial in yesterday’s edition.

The Greek state “must be rebuilt, like in a developing nation,” Blome said. “Someone among the euro-zone leaders must finally tell the Greeks the truth: this fresh start can only be achieved with a radical first step. And that means leaving the euro.”

-- With assistance from Tony Czuczka in Berlin, Rebecca Christie in Brussels, Maria Petrakis and Natalie Weeks in Athens, Kate Andersen Brower in Chicago, Peter Levring in Copenhagen and Angus Whitley in Sydney. Editors: Alan Crawford, Andrew Clapham

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Ben Sills in Madrid at bsills@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Twitter Said to Expect $1 Billion in Revenue in 2014

By Jonathan Erlichman and Brian Womack - Jun 2, 2012 4:16 AM GMT+0700

Twitter Inc. expects to generate at least $1 billion in sales in 2014, two people with knowledge of the matter said, indicating that the blogging service will grow about twice as fast as some analysts now predict.

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Twitter, which unveiled its first ad offering in 2010, started a self-service platform this year to reach more small businesses. Photographer: Kimihiro Hoshino/AFP/Getty Images

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June 1 (Bloomberg) -- Twitter Inc. expects to generate at least $1 billion in sales in 2014, two people with knowledge of the matter said, indicating that the blogging service will grow about twice as fast as some analysts now predict. Jon Erlichman reports on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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The Twitter Inc. website is displayed for a photograph in New York. Photographer: Scott Eells/Bloomberg

Twitter based the forecasts on expected advertising demand, said the people, who asked not to be identified because the numbers are private. The San Francisco-based company could change or miss the forecasts, the people said.

Demand for advertising aimed at Twitter’s more than 140 million users is benefiting the company. Researchers at EMarketer Inc. have said that in 2014, Twitter will reach $540 million in ad sales, which make up virtually all of its revenue, up from $139.5 million last year. Even so, it will take Twitter longer to generate $1 billion than bigger competitors Facebook Inc. (FB) and Google Inc. (GOOG)

“The marketers who have used Twitter’s advertising opportunities have been pleased,” said Nate Elliott, an analyst with Forrester Research Inc. (FORR) in New York. “Twitter’s going to be able to push forward and continue to make more money from it.”

Google crossed the $1 billion threshold five years after its founding, while Facebook, which sold shares in an initial public offering last month, achieved that goal six years after it got started. Founded in 2006, Twitter will be eight years old in 2014.

Overseas Expansion

Twitter has stepped up a campaign to induce marketers to devote more of their ad budgets to its service, which lets users post messages of no more than 140 characters to followers. Twitter, which unveiled its first ad offering in 2010, started a self-service platform this year to reach more small businesses. It also recently expanded mobile-ad services.

Companies need to spend money on Twitter to ensure their messages are seen, said Jeremiah Owyang, an analyst at San Mateo, California-based Altimeter Group. “Because all of the brands are jumping in and spewing content, there’s a deafening noise. So, the one way to cut across that is to advertise and make your content shine higher.”

Under Chief Executive Officer Dick Costolo, Twitter is also working to expand internationally, including in Japan, to lessen its reliance on the U.S. market. The percentage of revenue Twitter earns from the U.S. will fall to 83 percent in 2014 from about 90 percent this year, researcher EMarketer estimated in January.

Management Stability

He is also aiming to bring stability to management after a series of shifts at the top. Costolo was promoted to CEO in 2010, taking over for Evan Williams, a co-founder. The next year, another co-founder, Jack Dorsey, became executive chairman of the company and head of product development.

Dorsey, who had been replaced as CEO by Williams in 2008, splits his time between Twitter and his duties as CEO of Square Inc., the mobile-payments provider he co-founded in 2009.

While the company’s ad service may be improving, EMarketer in September reduced its estimates for revenue because of slowness in rolling out the self-serve ad platform that was announced earlier this year. EMarketer had earlier predicted revenue of $150 million instead of $139.5 million.

Gabriel Stricker, a spokesman for Twitter, declined to comment.

To contact the reporters on this story: Jonathan Erlichman in New York at jerlichman1@bloomberg.net; Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Netflix Passed Apple in Internet-Movie Revenue in 2011

By Nick Turner - Jun 2, 2012 3:15 AM GMT+0700

Netflix Inc. (NFLX) passed Apple (AAPL) Inc. in U.S. online-movie revenue last year, fueled by booming demand for streaming-video subscriptions, research firm IHS said.

The Los Gatos, California-based company’s share of U.S. consumer online-movie sales jumped to about 45 percent last year, IHS said today in a report. Apple saw its share fell to 32 percent from about 61 percent.

Netflix split its Internet-streaming service from its DVD- rental plan last year, making it easier to track revenue from online users. It charges customers $7.99 a month to watch unlimited movies and TV shows, which are delivered instantly. Apple’s iTunes, in contrast, charges for programs individually.

Netflix used to offer its streaming and DVD mail-order services together for $9.99. When the company split the package into two $7.99 options, the move irked some customers and led to cancellations and slower growth. Still, the streaming part of the industry is poised to more than double to $1.1 billion this year, Englewood, Colorado-based IHS predicted.

Prospects for movies purchased one at a time -- as is the case with iTunes -- aren’t as strong, the firm said. That market grew 2.4 percent last year to $236 million, IHS found.

Netflix’s stock declined less than 1 percent to $62.95 at the close in New York. Shares of Cupertino, California-based Apple dropped 2.9 percent to $560.99.

To contact the reporter on this story: Nick Turner in New York at nturner7@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net; Nick Turner at nturner7@bloomberg.net

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U.S. Employers Add 69,000 Jobs, Fewer Than Forecast

By Timothy R. Homan - Jun 2, 2012 3:08 AM GMT+0700

The American jobs engine sputtered in May as employers added the fewest workers in a year and the unemployment rate rose, dealing a blow to President Barack Obama’s re-election prospects and raising the odds the Federal Reserve will step in to boost growth.

Payrolls climbed by 69,000 last month, less than the most- pessimistic forecast in a Bloomberg News survey, after a revised 77,000 gain in April that was smaller than initially estimated, Labor Department figures showed today in Washington. The median projection called for a 150,000 May advance. The jobless rate rose to 8.2 percent from 8.1 percent.

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Alstrom Heat Transfer LLC employee Edgar Caytano arc welds a component at the company's facilities in New York. Photographer: Scott Eells/Bloomberg

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June 1 (Bloomberg) -- Mohamed El-Erian, chief executive officer and co-chief investment officer at Pacific Investment Management Co., Jan Hatzius, chief economist at Goldman Sachs Group Inc., and Dean Maki, chief U.S. economist at Barclays Plc, offer their views on today's U.S. employment report for May, the outlook for Federal Reserve monetary policy and the possible impact of today's data on the U.S. presidential election. This report also contains comments from former U.S. Labor Secretary Lynn Martin; Jason Schenker, president of Prestige Economics LLC; Mark Zandi, chief economist at Moody's Analytics Inc.; Lanhee Chen, policy director for presumptive Republican presidential nominee Mitt Romney; Alan Krueger, chairman of the White House Council of Economic Advisers, and Matthew Dowd, Bloomberg political analyst and former chief campaign strategist for George W. Bush. (Source: Bloomberg)

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June 1 (Bloomberg) -- American employers in May added the smallest number of workers in a year and the unemployment rate unexpectedly increased as job-seekers re-entered the workforce. Payrolls climbed by 69,000 last month, less than the most-pessimistic forecast in a Bloomberg News survey, after a revised 77,000 gain in April that was smaller than initially estimated, Labor Department figures showed today in Washington. The jobless rate rose to 8.2 percent from 8.1 percent, while hours worked declined. Peter Cook reports on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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June 1 (Bloomberg) -- Mohamed El-Erian, chief executive officer and co-chief investment officer of Pacific Investment Management Co., talks about the May U.S. jobs report, the outlook for global economies and central bank policies. Payrolls climbed by 69,000 last month, less than the most-pessimistic forecast in a Bloomberg News survey, Labor Department figures showed today in Washington. El-Erian speaks with Betty Liu and Dominic Chu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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June 1 (Bloomberg) -- Mark Zandi, chief economist at Moody's Analytics Inc., talks about the May employment report, the U.S. economy and the outlook for Federal Reserve policy. Zandi, speaking with Tom Keene on Bloomberg Television's "Surveillance Midday," also discusses the European debt crisis. (Source: Bloomberg)

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June 1 (Bloomberg) -- Delaware Governor Jack Markell, a Democrat, talks about today's report showing U.S. employers added the fewest workers in a year in May and the Obama administration's economic policies. He speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

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June 1 (Bloomberg) -- Economist James O'Sullivan talks about the May employment report, the U.S. economy and the outlook for Federal Reserve policy. O'Sullivan speaks with Adam Johnson and Stephanie Ruhle on Bloomberg Television's "InBusiness." (Source: Bloomberg)

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June 1 (Bloomberg) -- David Kelly, chief market strategist for JPMorgan Funds, talks about the May employment report, the outlook for the U.S. economy and investment strategy Kelly speaks with Betty Liu, Dominic Chu and Joshua Lipton on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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June 1 (Bloomberg) -- Bloomberg's Peter Cook reports that American employers in May added the smallest number of workers in a year and the unemployment rate unexpectedly increased as job-seekers re-entered the workforce, further evidence that the labor-market recovery is stalling. Payrolls climbed by 69,000 last month, less than the most-pessimistic forecast in a Bloomberg News survey, after a revised 77,000 gain in April. He speaks on Bloomberg Television's "In The Loop." (Source: Bloomberg)

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June 1 (Bloomberg) -- Nigel Travis, chief executive officer of Dunkin’ Brands Group Inc., talks about the company's plans to boost hiring and develop new stores. He speaks with Erik Schatzker and Stephanie Ruhle on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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Job seekers at a job fair in New York City. Photographer: Scott Houston/Corbis

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“The picture is getting more worrisome,” said Bruce Kasman, chief economist for JPMorgan Chase & Co. in New York, which lowered its 2012 growth forecast to 2.1 percent from 2.3 percent after the jobs report. “The U.S. economy is going to be somewhat softer over the next couple of quarters.”

Stocks tumbled, erasing the 2012 advance in the Dow Jones Industrial Average, and Treasury yields fell as the data reinforced concern that global growth is heading for a third mid-year lull. Other reports today showed manufacturing output shrank in Europe and slowed in China, the world’s second-largest economy.

The Dow slumped 2.2 percent to 12,118.57 at the close of trading in New York. The yield on the benchmark 10-year Treasury note dropped to 1.46 percent, from 1.56 percent late yesterday, after sliding to a record 1.4387 percent.

Manufacturing in Asia

A measure of manufacturing in the 17-nation euro fell to a three-year low, while measures of the industry in China, India, South Korea and Taiwan also weakened.

Other U.S. data today pointed to bright spots for the economy as manufacturing maintained its expansion and consumers stepped up spending.

The Institute for Supply Management’s index of manufacturing eased to 53.5 in May, in line with the median estimate in a Bloomberg survey, from April’s 54.8. Orders climbed to the highest level since April 2011.

Household purchases increased 0.3 percent in April after a revised 0.2 percent rise the prior month, according to figures from the Commerce Department. The gain in spending matched the median forecast in a Bloomberg survey.

Estimates of the 87 economists surveyed on payrolls ranged from increases of 75,000 to 195,000 after a previously reported 115,000 rise in April. Revisions subtracted a total of 49,000 jobs to payrolls in March and April.

Longest Stretch

The unemployment rate was forecast to hold at 8.1 percent, according to the survey median. Unemployment has exceeded 8 percent since February 2009, the longest such stretch since monthly records began in 1948.

The number of people unemployed for 27 weeks or more rose as a percentage of all jobless, to 42.8 percent from 41.3 percent. Among them is Dexter Favors, 57, an Air Force veteran who lives in Atlanta.

“I have been searching relentlessly, and I can’t find anything,” said Favors, who has been out of work for three years, though his wife is employed. “It is kind of rough right now because she is pulling the load.”

Favors, who worked last as a grocery store department manager, said he has put out around 80 applications for work and continues to search.

Byron Wilson, 41, of Marietta, Georgia, lost his job as a sales manager almost two years ago. He said his $1,200 a month in unemployment benefits will run out in September.

1994 Honda Civic

Wilson, who has an 11-year-old son, said he drives a 1994 Honda Civic with more than 300,000 miles on it and has cut out purchases of clothing and “any entertainment.” He has been using the time he’s been out of work to go back to Georgia Perimeter College, where he is studying sports management.

Unemployment benefits have been “extremely important,” he said. “It is definitely a critical time for me.”

Mitt Romney, the presumptive Republican nominee in the November presidential election, seized on the jobs figures to attack Obama.

“It is now clear to everyone that President Obama’s policies have failed to achieve their goals and that the Obama economy is crushing America’s middle class,” Romney said in a statement.

The administration, seeking to blunt the political impact, highlighted private payroll gains over the past 27 months while promoting measures Obama has proposed to boost hiring.

‘Fragile’ Economy

“We’ve known all along that this is a fragile world economy, but we have been adding jobs,” Alan Krueger, chairman of the White House Council of Economic Advisers, said on Bloomberg Television today. “We’d like to see more job growth given the enormous hole that we face in terms of jobs in this country.”

Private payrolls, which exclude government agencies, rose 82,000 in May after a revised gain of 87,000. They were projected to rise by 164,000, the survey showed.

“The U.S. economy is recovering but at a stubbornly slow pace,” Carl Camden, president and chief executive officer at staffing provider Kelly Services Inc., said on a May 9 conference call. “Weakening European economies have shaken confidence here in the U.S. Business, consumers and investors remain cautious.”

Factory employment increased by 12,000, less than the survey forecast of a 15,000 increase. Among companies boosting payrolls is General Motors Co., the world’s biggest automaker, which said last month it will add 600 employees to a second shift at an assembly plant in Lansing, Michigan, according to the Detroit News.

Construction Cuts

Construction companies cut 28,000 jobs, the most in two years, and retailers boosted payrolls by 2,300. Government payrolls declined by 13,000. Employment at service providers increased 84,000 in May.

Meaghan Flood, 22, just graduated from Middlebury College in Middlebury, Vermont as an English and Chinese double major. She will begin working for Portland, Maine-based The Beacon Group, a consulting company, on June 18.

“Every interview I went to, they told me how hard the job market still is,” she said. “Even the people who want to hire you were warning about the possibility that they wouldn’t be able to.”

Today’s report increases the odds that Fed policy makers led by Chairman Ben S. Bernanke will take further action to stimulate the world’s largest economy when they next meet on June 19-20. Operation Twist, a program to extend the maturities of bonds on the Fed’s balance sheet, expires this month.

Prolonging Program

Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview before today’s report that the central bank should prolong the program.

“That would have the impact of helping to reduce longer- term interest rates without expanding our balance sheet,” Rosengren said yesterday.

Other Fed policy makers may join him in supporting an extension, said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina.

“My feeling is that because the slowdown in the economy has been fairly rapid compared to what they expected, that they’ll go ahead and extend Operation Twist,” he said.

Income growth also slowed, today’s report showed. Americans’ average hourly earnings were 1.7 percent higher than a year earlier, the smallest 12-month change since December 2010. At the same time, they worked 34.4 hours a week on average, six minutes less than the month before.

Part-Time Workers

The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- increased to 14.8 percent from 14.5 percent.

The participation rate, which indicates the share of working-age people in the labor force, rose to 63.8 percent from 63.6 percent.

Faster economic growth would help lay the groundwork for more hiring.

Gross domestic product climbed at a 1.9 percent annual rate from January through March, down from a 2.2 percent prior estimate, reflecting smaller gains in inventories and bigger government cutbacks, according to revised Commerce Department figures released yesterday. The report also showed corporate profits rose at the slowest pace in more than three years and smaller wage gains at the end of 2011.

The pace of growth has been “disappointing” and “the headwinds retarding recovery are well known,” Fed Bank of New York President William C. Dudley said this week. He reiterated that he expects growth of about 2.4 percent over the next four quarters and said Europe’s sovereign debt crisis poses a downside risk to the outlook.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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