Drop in jobless claims buoys stock market

Wall Street rejoiced in an unexpected drop in weekly jobless claims Thursday that spurred hopes that the labor market recovery will stay on track.

Major stock indexes rose by nearly 2 percent after the Labor Department reported that the number of people filing for unemployment benefits dropped to the lowest level in nearly three years. Economists surveyed by Bloomberg had expected that the number of claims would rise by about 7,000, to 395,000. Instead, they fell by 20,000, to 368,000.

Investors were betting that the decline signaled good news for the monthly unemployment figure to be released Friday. Meanwhile, strong retail sales data and a dip in oil prices contributed to Wall Street's optimism.

"We are beginning to crawl our way out of the hole left by the recession, albeit at a slower pace than we would like to see," said Diane Swonk, chief economist for Mesirow Financial.

The tech-heavy Nasdaq closed up 51 points, at 2798.74, on Thursday, and the broader Standard & Poor's 500-stock index climbed 23 points, to 1330.97. The Dow Jones industrial average, composed of 30 blue-chip stocks, rose 191 points, to 12,258.20.

James Cox, managing partner at Harris Financial Group, cautioned that a handful of companies were responsible for much of the Dow's gain. Caterpillar and IBM contributed about 25 points each.

"This is not a 100 percent, everything-is-going-up-at-the-same-time rally," Cox said.

Still, stock market gains in recent months appear to have helped buoy wealthy consumers. Luxury retailers had stellar results in Thursday's report on February sales at stores open at least a year, a key measure of industry health. Sales at Neiman Marcus jumped nearly 13 percent in February, compared with the same month last year, and Saks reported an increase of 15 percent.

Overall, the high-end sector gained 10 percent, the most of any category, according to an analysis by the International Council of Shopping Centers, a trade group. Wholesale clubs came in second, with a 7.7 percent increase, the ICSC said. Several department stores also performed well, including Macy's, which credited new spring merchandise with driving a 5.8 percent sales increase.

For the roughly 30 chain stores that reported February results Thursday, the ICSC calculated a total 4.2 percent jump.

Meanwhile, the S&P index of retail stocks rose about 1 percent.

"What's been good to see so far . . . is that momentum that we built has been holding," said Michael McNamara, vice president of research and analysis for MasterCard Advisors SpendingPulse, which reports on consumer spending.

At the same time, the sales data provide only a snapshot of consumer spending, and several companies have stopped reporting monthly results, including Wal-Mart, the world's largest retailer. Brian Sozzi, research analyst at Wall Street Strategies, said consumers have yet to feel the full effect of rising commodity prices. He said shoppers are just beginning to switch to cheaper food brands and clothing as they try to determine how long the spikes will last.

"There is a little bit of a trade-off starting to happen," he said.

Rising gas prices could also curtail consumer spending on discretionary purchases. Nationally, the average price of a gallon of gas jumped more than 19 cents, to $3.38, in the past week, and the price of a barrel of crude oil for April delivery topped $100 on the New York Mercantile Exchange, the highest level in more than two years. On Thursday, the price of crude eased by 32 cents, to $101.91, although continued unrest in Northern Africa and the Middle East has made the market increasingly volatile.

Nevertheless, the most important gauge of the recovery may be the February jobless rate slated for release Friday. Economists expected the rate to rise slightly, to 9.1 percent, and the number of jobs created was predicted to hit 200,000.