Illinois Government Consultants Incorporated

Equity investors on Wall Street found bad news staring them in the face again Thursday.

Disappointing reports about the job market and a regional slowdown in manufacturing reminded traders that the economic recovery was beginning to slow and that the job market would continue to be weak because of it.

Shares on Wall Street were down more than 1.5 percent in afternoon trading after the Department of Labor said that initial claims for unemployment insurance rose last week to a seasonally adjusted half a million people, the first time since November that they have reached that level. The jobless claims climbed by 12,000 to 500,000 from the previous week’s revised 488,000.

Wall Street analysts had expected the seasonally adjusted claims to drop.

“The whole lack of improvement and further rise in claims coincides with the concerns about production and growth in the economy,” Steven C. Wieting, an economist for Citigroup, said.

The unemployment report was the first of a one-two punch for investors on Thursday morning.

In addition, the Federal Reserve Bank of Philadelphia’s monthly indexshowed that manufacturing in the mid-Atlantic states shrank this month. The index fell to minus 7.7 points in August — its lowest level since July 2009 — from last month’s 5.1 points.

The two reports were enough to topple trading from the outset, reversing the upward trend of the last two days when the market rose 1.1 percent.

“On a day when there is light volume, and most of the big earnings are already gone, you tend to focus back on the economic fundamentals and these numbers certainly were simply not good numbers,” a market strategist for Prudential Financial, Quincy Krosby, said. “We need to see these numbers turn in the other direction.”

By early afternoon, the Dow Jones industrial average fell 158.56 points, or 1.5 percent. The broader Standard & Poor’s 500-stock index fell 19.28 points, or 1.85 percent, while the Nasdaq fell 37.49 or 1.7 percent.

In Europe, the FTSE 100 in London ended the day down 91.58 points, or 1.73 percent, while the DAX in Frankfurt declined 111.18 points, or 1.8 percent. The CAC 40 in Paris was 75.53 points, or 2.1 percent, lower.

“If we can get through the summer doldrums and see activity pick up it is going to help put a floor on the market,” Ms. Krosby said. “But if the economic numbers continue to disappoint investors are going to be nervous about where we are headed.”

Bond prices rose as yields dropped. The yield on the 10-year Treasury note fell to 2.58 percent from 2.63 percent late Wednesday.

“The uptick in jobless claims which was fairly severe and the amount of receiving in interest swaps ended most of the overnight sell-off in the bond market,” said Tom di Galoma, head of United States rates trading at Guggenheim Securities.

The disappointing economic reports followed the trend in which relatively weak data has confirmed a slow recovery. Corporate news or reports on second quarter results have often struggled to overcome any negative downturn on the overall market.

On Thursday, the chip maker Intel said that it was acquiring McAfee in a deal valued at $7.68 billion, with Intel paying $48 a share in cash, a 60 percent premium over McAfee’s Wednesday closing price of $29.93.

Shares in McAfee, the maker of antivirus software, were up 57 percent on Thursday; Intel’s were down 3.6 percent.

The Department of Labor claims report was the latest to offer a discouraging view that the job market in the United States was struggling, and again it revived sentiment that the underlying trend in the economy is one of a sluggish recovery.

Earlier this month, the department said that the nation lost 131,000 jobs in July, and that June was far weaker than previously indicated. While private employers added 71,000 jobs, those figures were overtaken by the 143,000 layoffs as the Census finished its work. The unemployment rate remained at 9.5 percent in July, mostly because of people giving up the search for work. Overall, the economy has lost more than eight million jobs during the recession.

The concern among economists is that the unemployment rate will rise if the economy weakens. The economy grew at a 3.7 percent annual rate in the first quarter and 2.4 percent in the second. But new trade deficit and other economic data this month has pointed to the potential for gross domestic product to be revised down from the 2.4 percent to between 1 and 1.5 percent.

“And the auto industry failed to shut down seasonally in early July,” Mr. Wieting said.

“In the July 10 week, we hit the lowest claims level of the year,” he added, or about 427,000. “It may be partly the payback for that.”

Several states were particularly hard hit by a rise in claims. California showed an increase of 4,393 because of layoffs in the service industry. Indiana showed a rise of 1,999 because automotive and manufacturing workers were let go.

“That people are filing for the first time is the bad news,” said Joshua Shapiro, chief United States economist for MFR Inc.

A private research group, the Conference Board, said its index of leading economic figures rose 0.1 percent last month to 109.8. That was a reversal of a 0.3 percent drop in June, and a 0.5 percent increase in May.

Economists polled by Thomson Reuters had expected a gain of 0.2 percent.
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Source: The New York Times