An unexpected drop in hiring put an end to the excitement that had been bubbling up on Wall Street over the past two weeks.
Stock indexes fell sharply Friday, erasing most of the week's gains, after the government reported that U.S. employers created the fewest number of jobs in nine months. The 18,000 net jobs in created in June were a fraction of what many economists expected and dampened hopes that the economy was improving. Private companies added jobs at the slowest pace in more than a year. The unemployment rate edged up to 9.2 percent, its highest level this year.
A broader measure of weakness in the labor market was even worse. Among Americans who want to work, 16.2 percent are either unemployed or unable to find full-time jobs. That was up from 15.8 percent in May.
"There's just a lot more evidence than before that we're in an extended weak patch," said Brian Gendreau, market strategist for Cetera Financial Group. He said private economists will likely reduce their projections for overall economic growth this year.
The Standard and Poor's 500 index fell 9.42 points, or 0.7 percent, to 1,343.80. That eliminated the index's gains from Thursday and left it with a 0.3 percent gain for the week.
The Dow Jones industrial average lost 62.29, or 0.5 percent, to 12,657.20. The Dow, which had been down by as much as 150 points Friday, had only its second down day over the past nine. The Nasdaq composite dropped 12.85, or 0.4 percent, to 2,859.81. It was its first loss in two weeks.
Companies whose business would be most affected by a weakening economy were hit hardest. Bank of America Corp., General Electric Co. and Boeing Co. were among the biggest decliners in the Dow average.
"The chance of a July bounce back in the economy looks pretty slim now," said Jay Tyner, president of Semmax Financial Group in Greensboro, North Carolina.
Expectations for Friday's jobs report were raised Thursday after payroll processor ADP said that private companies added more than 150,000 jobs in June. While the ADP report does not always accurately predict the broader Labor Department report, some investors said that the apparent clashing pictures of the job market were due to a jobs pickup in the last weeks of June.
Phil Orlando, chief market strategist at Federated Investors, said he believes manufacturers began rehiring workers in late June following signs that Japan's economy was improving. Hiring slumped in May due partly to high fuel prices and disruptions of industrial supplies because of the earthquake and tsunami disasters in Japan.
Traders rushed to the relative safety of government bonds. The yield on the 10-year Treasury note fell to 3.01 percent from 3.19 percent just before the jobs report came out. Bond yields fall when demand for them increases.
Oil prices fell 2.5 percent. The slowdown in hiring suggested that demand for fuel will increase less than traders had expected. Lower fuel prices could eventually help the economy by leaving consumers with more money to spend on things other than gas.
Weak economic data this spring pushed stocks near their lowest levels of the year two weeks ago. Markets recovered last week, giving the Dow its best week in two years, on signals that the economy was rebounding. Stock indexes closed near their 2011 highs on Thursday.
Despite the weak job market, analysts still expect earnings at big U.S. companies to be strong. Companies are benefiting from export growth as the weak dollar makes American goods cheaper, and therefore more competitive, in overseas markets. Aluminum maker Alcoa Inc., one of the 30 companies in the Dow average, will be the first major corporation to report second-quarter financial results on Monday.
Orlando, the market strategist, said investors will be looking to see how companies have responded to higher commodity costs and a shortage of parts from Japan. "It's not going to be an earnings season where you can have a blanket proclamation regarding how companies are doing this time around," he said.
In other company news, Rupert Murdoch's media conglomerate News Corp. fell nearly 4 percent as a phone-hacking scandal at its News of the World tabloid deepened. A former editor of the paper who later served as spokesman for British Prime Minister David Cameron was arrested Friday. News Corp. shuttered the 168-year old paper on Thursday in hopes of saving its deal to take over the lucrative British satellite TV company British Sky Broadcasting. Government approval of that deal will now be delayed because of the crisis, which has shocked Britain.
The Dow rose 0.6 for the week, the Nasdaq 1.6 percent.
Two stocks fell for every one that rose on the New York Stock Exchange. Volume was lighter than average at 3.1 billion shares.