Upbeat economic reports lift stocks

Productivity surges; jobless-claim numbers beat expectations

Stocks climbed Thursday as investors cheered improving economic data, including a surge in worker productivity and a stronger-than-expected weekly unemployment claims report.

Investors have swung between optimism about signs the economy is healing and concerns about the pace of the recovery. But after a week of largely positive economic news, a broad rally left the Dow Jones industrial average above the benchmark level of 10,000 for the first time in two weeks. Every stock on the index closed in positive territory.

"Some of the more skeptical investors that have been hoarding cash are starting to capitulate," said Howard F. Ward, director of growth products at Gamco Investors.

The Dow was up 2.1 percent, or 203.82 points, its biggest gain since July, to close at 10,005.96, while the broader Standard & Poor's 500-stock index gained 1.9 percent, or 20.13 points, to close at 1066.63. The tech-heavy Nasdaq composite index jumped 2.4 percent, or 49.80 points, to close at 2105.32, boosted by better-than-expected quarterly results from Cisco Systems. Cisco's stock closed up 2.7 percent.

Investors were looking for, and received, economic data this week that appeared to address concerns that the 3.5 percent increase in third-quarter gross domestic product was solely attributable to government stimulus efforts, said Ward. Data showed this week that manufacturers expanded production last month at the fastest rate in more than three years and pending home sales -- an indication of future activity -- increased again. Also Thursday, retailers reported sales gains for the second straight month in October.

Those hopes were reinforced by an unexpectedly large drop in the number of workers filing initial claims for unemployment benefits last week. Initial jobless claims fell 20,000 to a seasonally adjusted 512,000, according to Labor Department data released Thursday. That was better than what analysts had expected and the lowest level of initial claims since January.

That data provided an encouraging precursor to the larger monthly unemployment report to be released Friday, analysts said. Economists expect the unemployment report to show that the number of workers who lost their jobs last month dipped to about 175,000, compared with 263,000 in September. Meanwhile, the unemployment rate is expected to move closer to 10 percent, its highest level in decades.

But investors Thursday were betting that the report could surpass expectations, at least in the number of jobs lost. That could indicate "we're nearly at the point where the jobs market is beginning to stabilize," said Peter I. Cardillo, chief market economist with New York-based Avalon Partners.

Also boosting stocks Thursday were signs that companies are squeezing more efficiency from a smaller workforce. Productivity, the amount of output per hour worked, climbed at a 9.5 percent annual rate during the third quarter, according to the Labor Department. That is the fastest pace since the third quarter of 2003.

The total number of hours worked fell 5 percent, while output increased 4 percent, according to the report. That will translate into bigger profits, but means that the labor market remains weak as corporations shrink the size of their workforce, analysts said. "They have basically cut all of the fat out and are basically running a lean, mean fighting machine," said Brian A. Bethune, an economist for IHS Global Insight.

But that surge in productivity is likely temporary, and as the economy heals there will be pent-up demand for more workers, Bethune said. "You can't overextend for too long, your employees will get fatigued," he said. "You can only run for a certain period of time at those very high productivity levels before something comes back, like a deterioration in product quality."