Jobless claims indicate “border-line recession warning.”
Jobless claims surged and sent stocks plummeting in the opening minutes today as traders worried about the possible onset of the credit/housing-bust led recession. First time claims rose by 69,000 to 375,000 smoking estimates of a smaller rise of jobless claims to 320,000.
Even factoring in for seasonal volatility the number came as a shock to people on Wall Street. From the Market Watch story on the higher jobless claims:
Initial claims for state unemployment benefits rose 69,000 in the week ended Jan. 26, reaching 375,000, the Labor Department reported Thursday. It marked the highest level since early October — and the biggest weekly jump since September 2005 in the wake of Hurricane Katrina.
Non-seasonally adjusted claims actually fell in the latest week, but seasonal factors expected a much steeper decline.
All the same, Robert Brusca, chief economist at FAO Economics, said that, despite the technical noise, claims are now indicating a “border-line recession warning.”
The spike in jobless claims tied with the continued turmoil in the credit markets and the tapering-off of consumer spending are not the way most people bullish on the economy would like to see them headed. Consumer spending is an important one to watch as many believe the economy was propped up on home equity withdrawals as part of the housing bubble.
In addition, the Commerce Department reported that real consumer spending flattened out in December, further evidence that the economy was getting weaker as the fourth quarter sputtered to an end.