U.S. private employers cut almost half a million jobs in June and mortgage applications fell to a seven-month low last week, dampening hopes the economy was emerging from its worst slump since the Great Depression.
The news supported other evidence from Europe and Asia that a broad recovery would be slow in coming, as euro zone manufacturing activity contracted in June, with Germany lagging behind other nations, and Japanese business morale disappointed.
The 473,000 private-sector job losses were more than expected, but less the 485,000 jobs lost in May and the smallest number cut in a month since last October.
The Mortgage Bankers Association said its U.S. mortgage applications index fell 18.9 percent in the week ended June 26 to its lowest level since November, despite slightly lower borrowing costs.
"Rising unemployment, concerns about job security, potential buyers' inability to sell their existing homes and problems with appraisals coming in too low are all weighing on demand," said Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.
Euro zone manufacturing activity contracted less than initially thought in June, as the Markit Eurozone Manufacturing Purchasing Managers Index rose to 42.6 from 40.7 in May. It was the highest score since September but still far from the level of 50 that separates expansion from contraction.
ASIA ENCOURAGING
Asian data excluding Japan were more encouraging than the news from Europe, with China's manufacturing sector extending a steady if unspectacular recovery in June, and South Korea's exports falling much less than expected from a year earlier.
In Japan, business morale improved less than expected in June, plagued by doubts about the global economy, while U.S. consumer confidence dropped more sharply than expected, suggesting the 18-month recession had not loosened its grip.
"Japanese firms are facing a more severe situation than market players think," said Susumu Kato, chief economist at Calyon Capital Markets Japan.
In Britain, manufacturing activity fell at its slowest pace in more than a year in June as output rose for the first time in 15 months, a survey showed. Service sector output fell at its slowest pace in six months.
"The most pleasing aspect of the ongoing recovery in June was its broad base," said Rob Dobson, senior economist at Markit, noting that consumer, intermediate and investment goods producers had all posted gains in output.
In Germany, engineering orders fell by 48 percent in May in real terms from the previous year, the industry association VDMA said on Wednesday. In the March-May period, orders were down 47 percent from a year ago.
However, German retail sales rose unexpectedly by 0.4 percent month-on-month in May, their third consecutive increase, in a sign that lower inflation rates are encouraging consumers to spend despite the threat of job losses.
"These are good figures," said Juergen Michels, an economist at Citigroup in London. "Consumption is looking quite robust in this recession. A clear fall in inflation is helping as it boosts purchasing power."
CONTRARIAN
A contrarian view was expressed by European Central Bank Governing Council member Axel Weber, who said the world economy would not return to growth before mid-2010, putting him at odds with the majority of economists recently polled by Reuters.
"I don't think we'll see a return to positive growth before the middle of next year," the Bundesbank president said in a documentary to be aired on German television.
World stocks began the third quarter on an upbeat note, with European and emerging market shares rising around 1 percent and oil climbing on hopes for a recovery in demand.
"More and more evidence is accumulating to suggest that the decline in economic activity is coming to an end," Barclays Wealth said in a note.
Optimists were encouraged by the Chinese official purchasing managers' index for June, which rose to 53.2 from 53.1 in May, adding to evidence across Asia that the regional economy is finally pulling out of a deep dive.
"It shows that the economy is in an upward trend," said Zhang Liqun, a researcher with the Development Research Centre, a think tank under the State Council, China's cabinet.
Oil climbed back above $71 a barrel as an industry inventory report showing a larger-than-expected fall in U.S. crude stocks buoyed hopes of a demand recovery, while output disruptions from militant attacks in Nigeria provided support.
