The major indices showed modest gains today as news broke about new jobless claims reaching their lowest rate in over three years according to data compiled by the Labor Department. The Dow Jones Industrial Average and S&P 500 were both up around 0.5 percent while the Nasdaq showed only a slight gain.
Lower Jobless Claims Could be Good Sign
After years of slow growth, persistent unemployment, and concerns about a "jobless recovery," many economists viewed the news Thursday as being very positive. Initial jobless claims fell by 19,000 to a seasonally adjusted 366,000 for the week ending December 10th. While the numbers for the week ending December 3rd were revised up by 4,000 to 385,000, the initial jobless claims falling under 400,000 for five consecutive weeks, a sign that the economy could be growing. "This is unexpectedly great news," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "If claims can remain at this level, payroll growth will strengthen markedly within a month or so."
The weekly jobless rate was the lowest since May of 2008, while the new rate helped push the four week moving average down by 6,500 to 387,750, the lowest level since July of 2008. This news, when combined with the December 2nd release of the Department of Labor's jobs report that showed unemployment falling to 8.6 percent, has many economists believing that a real recovery is under way. However, some still express skepticism, citing the 310,000 people in the jobs report who had dropped out of the labor force completely as well as traditionally erratic jobs numbers during the holiday season. "Between Thanksgiving and new years we often see a large amount of seasonal volatility so it is hard for us to put too much weight behind this drop," said Jill Brown, vice president for economics at Credit Suisse.
The news also showed a continued lack of recovery in the manufacturing sector, with the segment adding only 2,000 jobs in November and showing stagnate growth since July. What's more, some states posted big increases in initial unemployment filings, mostly because of job losses in manufacturing. California's claims increased by over 27,000 due to layoffs in services, layoffs in the textile, furniture and construction pushed North Carolina's initial claims up by over 15,000, and New York and Pennsylvania both saw claims rise by almost 14,000. On the whole, while the data shows improvement, many economists believe that further progress is necessary before the economy can return to a truly healthy state.
“400,000 is definitely a good sign but part of that is because companies have already shed a lot of jobs, made a lot of cutbacks, so we’re not in that phase anymore,” said Stephen Bronars, senior economist at Welch Consulting. "So now the problem is getting people back to work. ...Layoffs have come way down but what we need is for hiring to pick up [to illustrate a recovery]. ...Although hiring is up, it’s not up to anywhere close to pre-recession levels.”
News Helps Markets Edge Higher
The gains on Wall Street were modest, but the Dow Jones, Nasdaq, and S&P still moved higher. Among some of the big gainers of the day was circuit maker Novellus Systems, Inc. (NVLS), which gapped up over 20 percent to start the day before settling into gains closer to 17.5 percent on news that Lam Research Corporation (LRCX) would be purchasing the company at a premium of 28 percent. Also posting significant gains were FedEx (FDX), which was up over 5.5 percent after an earnings report beat estimates, and airlines Delta (DAL) and United Continental Holdings (UAL), which gained about 8 percent and 5 percent respectively.
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