Employers added only 54,000 new workers in May, the fewest in eight months, and the unemployment rate rose to 9.1 percent from 9 percent, the Labor Department said. That's down sharply from the average of 220,000 jobs that the economy added in the previous three months. Private companies hired only 83,000 new workers in May, the fewest in nearly a year.
The results were far below analysts' already-low expectations.
Ahead of the opening bell, Dow futures fell 146 points, or 1.2 percent, to 12,092. Standard & Poor's 500 futures skidded 16, or 1.3 percent, to 1,296. Nasdaq 100 futures dropped 28, or 1.2 percent, to 2,298.
The yield on the 10-year Treasury note fell to 2.96 percent from 3.03 percent late Thursday as investors rushed into the safety of government bonds. Yields fall as bond prices rise.
The jobs report was the latest of many signals that the U.S. economy is slowing. High gas and food prices have cut into consumer spending and natural disasters in Japan have hurt U.S. manufacturers.
The Labor Department's closely watched monthly report caps a week in which weak economic news gave the Dow Jones industrial average's largest one-day drop in nearly a year on Wednesday. Bad reports on private hiring, industrial growth and claims for unemployment benefits caused analysts to lower their projections for economic growth in 2011.
The yield on the 10-year Treasury note, a benchmark for many kinds of business and consumer borrowing, dipped below the psychologically important level of 3 percent during Wednesday's broad stock sell-off. A warning from Moody's that it might review the government's Aaa debt rating helped push the yield back up to 3.03 percent by early Friday.
Later Friday, the Institute for Supply Management, a trade group of purchasing executives, will report on the growth in service businesses. Economists expect the index rose after April reaching the lowest level since last August.
April's weakness reflected the effects on the economy of high food and gas prices. Another disappointing reading would be signal that those factors are causing more harm than economists expected.
In another sign of the challenges facing consumer-focused companies, Newell Rubbermaid Inc. futures fell 10 percent after the company lowered its outlook for sales and earnings in 2011. Large retailers that sell the company's products are lowering their expectations for economic growth this year, the company said.
"Persistent softness in the U.S. economy and increased inflationary pressure have caused us to revise our outlook for the balance of the year," President and CEO Mark Ketchum said in a statement. "Our revised expectations are lower than they were just a short while ago."
Overseas markets were volatile, too, with investors focused on the U.S. jobs number and on the latest appraisal of Greece's financial situation.
Currency and bond investors in particular are waiting to see if Greece will get more time to manage its debts, even though it's having trouble meeting the commitments it made last year in return for a bailout package from its partners in the EU and the International Monetary Fund.
Weaker than expected sales reports from retailers and another large number of claims for unemployment benefits led to a mixed finish on Wall Street Thursday. First-time applications for unemployment benefits were well above the level that signals that the economy is adding jobs.
The Dow lost 42 points, or 0.3 percent, to close at 12,249 Thursday. The S&P 500 fell 2, or 0.1 percent, to 1,313. The Nasdaq composite finished up 4, or 0.2 percent, at 2,773.