Increase in jobless claims pushes down stocks

By Renae Merle and Dina Elboghdady
Friday, February 26, 2010

Stocks dipped modestly Thursday after government data showed that jobless claims reached their highest levels since November, renewing concerns about the weak state of the labor market.

An early sell-off sent each of the 30 stocks in the blue-chip Dow Jones industrial average into negative territory in morning trading, but several had recovered those losses by late in the afternoon.

The Dow fell 53.13 points, or 0.5 percent, to close at 10,321.03, and the broader Standard & Poor's 500-stock index fell 2.31 points, or 0.2 percent, to 1102.93. The tech-heavy Nasdaq was down 1.68 points, or 0.1 percent, to close at 2234.22.

Many investors were spooked by an unexpected jump last week in initial claims for jobless benefits, which rose by 22,000, to 496,000, according to Labor Department data. Economists had expected the number of claims to fall.

"The market did not expect such a surge in jobless claims. This morning's sell-off was abrupt, which usually means the market was more caught off guard than disappointed," said Thomas Francis Nordby, market strategist for Lind-Waldock.

Bad weather might have made those numbers worse by creating a backlog of people filing for unemployment benefits and putting some construction workers temporarily out of work, analysts said.

But the weekly jump in jobless claims was the second in a row, which reinforces concerns that improvements in other parts of the economy are not translating into a stronger labor market, analysts said. It also does not bode well for the February unemployment report, which will be released next week, they said.

"Some technical factors are at work in the latest week, but the bottom line is that the pattern of claims in recent weeks is sending a concerning signal on labor markets," Abiel Reinhart, a J.P. Morgan Chase analyst, wrote in a research note. "Claims fell steadily from April 2009 through the end of the year, but now they seem to be stalling at an elevated level."

The jobs data overshadowed a 3 percent increase in durable goods orders last month that was propelled by a surge in aircraft orders. But analysts noted that orders for nondefense capital goods excluding aircraft, a barometer of capital spending by businesses, fell by 2.9 percent.

The financial troubles of Greece have also weighed on the broader markets, as global investors worry about the outlook for Spain, Portugal, Ireland, Italy, and other European nations that could find themselves in similarly precarious situations.

The possibility of a downgrade of Greek debt by ratings agencies is spooking investors more than the jobless claims figures, said Stephen Auth, chief investment officer of equities at Federated Investors. But jitters about Greece's financial woes should die down as investors realize that other European countries will not allow Greece to lapse into default because of the devastating consequences that would have on the value of the euro, he said.

"People will fairly quickly figure out that [the Greece crisis] is not a big threat to the economic or stock market recovery in the United States," Auth said. "But if Greece actually did default, I would have to regroup on my forecast."

Staff writer Neil Irwin contributed to this report.

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