Our government with a close eye on the situation again - that word keeps showing up ... "unexpectedly". Kudos to the folks in our Labor Department. The "big deals" in some business sectors are becoming less effective in helping the economy as the unemployment rate climbs.
Stocks drop as jobless claims rise unexpectedly
Stephen Bernard, AP Business Writer, On Thursday August 19, 2010, 10:36 am
NEW YORK (AP) -- Stocks tumbled Thursday after two disappointing economic reports renewed investors' concerns about the pace of a recovery.
The Dow Jones industrial average fell 127 points in morning trading. Broader indexes also fell more than 1 percent.
The Labor Department said claims for unemployment benefits rose unexpectedly last week and the Federal Reserve of Philadelphia said manufacturing activity in the mid-Atlantic region has dropped during August.
more below ....
The disappointing reports followed news that Intel Corp. was acquiring McAfee Inc. The deal, valued at $7.68 billion, was not enough to offset the weaker economic readings.
The reports are the latest in a months-long string of conflicting readings on the economy. The reports have shown the pace of a rebound is slowing and that companies are skittish about adding new workers. That has hurt stocks on some days in recent weeks. It has also stoked fears about the economy falling back into recession.
At the same time, corporate announcements, including earnings reports for the past six weeks, have largely showed companies are doing well. Mergers and acquisitions activity is often considered a positive sign because it means companies are willing to spend money to grow their businesses and are confident that prospects are improving. To repeat myself: The "big deals" in some business sectors are becoming less effective in helping the economy as the unemployment rate climbs.
The Labor Department said initial claims for unemployment benefits rose by 12,000 to 500,000 last week from an upwardly revised 488,000 a week earlier. Economists polled by Thomson Reuters forecast claims would fall slightly. It was the fourth rise in claims in the past five weeks and sent them to their highest level since November.
High unemployment is considered the biggest hurdle to a stronger recovery because people worried about jobs have scaled back their spending. Consumer spending accounts for the bulk of the country's economic activity.
The Philly Fed manufacturing survey was negative 7.7 for August after a reading of 5.1 last month. Economists were expecting the index to rise this month. Any reading above 0 indicates growth in the sector.
Nearly five stocks fell for every one that rose on the New York Stock Exchange, where volume came to 160.5 million shares.
By CHRISTOPHER S. RUGABER (AP)
WASHINGTON — Employers appear to be laying off workers again as the economic recovery weakens. The number of people applying for unemployment benefits reached the half-million mark last week for the first time since November.
It was the third straight week that first-time jobless claims rose. The upward trend suggests the private sector may report a net loss of jobs in August for the first time this year.
Initial claims rose by 12,000 last week to 500,000, the Labor Department said Thursday.
Homebuilders and other construction firms are laying off more workers as the housing sector slumps after the expiration of a popular homebuyers' tax credit. State and local governments are also cutting jobs to close large budget gaps.
"The rise in initial jobless claims over the past three weeks makes it difficult to maintain confidence in the recovery and suggests the labor market is backtracking more than we first expected," Ryan Sweet, an economist at Moody's Analytics, wrote in a note to clients.
Stocks tumbled on the fear of more layoffs and weak job growth. The Dow Jones industrial average fell 150 points in morning trading. Broader indexes also declined.
Jobless claims declined steadily last year from a peak of 651,000 in March 2009 as the economy recovered from the worst downturn since the 1930s. After flattening out earlier this year claims have begun to grow again. (side note: I never saw where job claims declined. When I looked into other figures I found that temporary jobs such as those of the census workers were used to help the picture look better than was the case.)
"This is obviously a disappointing number that shows ongoing weakness in the job market," said Robert Dye, senior economist at the PNC Financial Services Group.
Dye said that claims showed a similar pattern in the last two recoveries, but eventually began to fall again. The current elevated level of claims is a sign employers are reluctant to hire until the rebound is well under way. That's what happened in the recoveries following the 1991 and 2001 recessions, which were dubbed "jobless recoveries."
The increase suggests the economy is creating even fewer jobs than in the first half of this year, when private employers added an average of about 100,000 jobs per month. That's barely enough to keep the unemployment rate from rising. The jobless rate has been stuck at 9.5 percent for two months.
The four-week average, a less volatile measure, rose by 8,000 to 482,500, the highest since December.
The number of people continuing to receive benefits fell by 13,000 to 4.5 million, the department said. The continuing claims data lags initial claims by one week.
But that doesn't include millions of people receiving extended unemployment insurance, paid for by the federal government. About 5.6 million unemployed workers were on the extended unemployment benefit rolls, as of the week ending July 31, the latest data available. That's an increase of about 300,000 from the previous week.
During the recession, Congress added up to 73 extra weeks of benefits on top of the 26 weeks customarily provided by the states. The number of people on the extended rolls has increased sharply in recent weeks after Congress renewed the extended program last month. It had expired in June.
Private employers added only 71,000 jobs in July. But that increase was offset by the loss of 202,000 government jobs, including 143,000 temporary census positions.
July marked the third straight month that the private sector hired cautiously. Economists are concerned that the unemployment rate will start rising again because overall economic growth has weakened significantly since the start of the year.
In a healthy economy, jobless claims usually drop below 400,000. But the recent increases in claims provide further evidence that the economy has slowed and could slip back into a recession. Many analysts are worried that economic growth will ebb further in the second half of this year.
After growing at a 3.7 percent annual rate in the first quarter, the economy's growth slowed to 2.4 percent in the April-to-June period. Some economists forecast it will drop to as low as 1.5 percent in the second half of this year.
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