Fewer jobs, falling home values and the biggest loss of household wealth on record may limit consumers’ ability to spend for years, analysts said. Stocks dropped for a third day as the reports indicated any recovery from the worst recession in at least half a century is likely to be subdued.

“It looks like consumers are losing momentum heading into the second quarter and that is a very worrisome development,” said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. “They have very significant headwinds and number one among them is that the labor market is far from turning the corner.”

The Standard & Poor’s 500 Stock Index fell 2.7 percent to close at 883.92. Benchmark 10-year note yields fell to 3.11 percent at 4:16 p.m. in New York from 3.18 percent late yesterday.

A separate report from Commerce showed inventories at U.S. businesses fell 1 percent in March, a seventh consecutive drop as slumping sales forced companies to pull back. The streak of decreases is the longest since 2001-2002.

Economists had forecast a quarterly drop of 2.2% and an annual decline of 4.1%.

Individual country data released earlier Friday had pointed to a steeper-than-expected fall for the region.

The German economy contracted 3.8% during the first quarter for a year-on-year decline of 6.9%, the worst since records began in 1970, as exports tumbled in Europe’s largest economy.

Economists had been pegging a 3.4% quarterly contraction.

The French economy didn’t fare much better, contracting at a 1.2% quarterly and a 3.2% annual rate.

Italy’s economy shrank 2.4%, or 5.9% from a year earlier.

Figures earlier this week showed Spain’s economy fell 1.8% from the previous quarter.

The bankruptcy filing by Chrysler, and the potential for a similar step by General Motors Corp., is likely to cause further job losses as suppliers and communities are affected. The industry’s woes threaten to delay the economy’s recovery from the deepest recession in half a century and send the unemployment rate up from what’s already a 25-year high.

“This is definitely the first area where you’ll see the fallout from the GM and Chrysler shutdowns,” said Omair Sharif, an economist at RBS Securities Inc. in Greenwich, Connecticut, who forecast claims would rise to 640,000. Factory production and orders for durable goods will probably “also take a bit of a hit,” he said.

Stocks and Treasuries rose. The Standard & Poor’s 500 Stock Index rose 1 percent to close at 893.07 in New York. Benchmark 10-year notes yielded 3.09 percent at 4:26 p.m., compared with 3.12 percent late yesterday.

The economy has now shrunk for four straight quarters, its longest downturn since 2001 after the dotcom bubble burst and tracking trends in regional neighbours Japan, Singapore and New Zealand.
“It is obviously worse than expected. It tells you how a severe global financial crisis can affect a healthy, small and open economy,” said Dong Tao, chief economist at Credit Suisse.
“Will Hong Kong see a further deterioration? It is not up to Hong Kong — it is up to the rest of the world especially the United States, China and the financial market.”
Chief Executive Donald Tsang warned on Thursday that the outlook for the economy in the second quarter was not optimistic as the global economy has yet to stabilise.

Compared with a year earlier, GDP fell 7.8 percent in the quarter, worse than a forecast 5.2 percent decline and the weakest performance since the third quarter of 1998 during the Asian financial crisis.
As a trading and financial hub, Hong Kong is highly exposed to both weak Western consumer demand and woes in the global financial sector.