Troubling U.S. jobless claims figures and a lackluster manufacturing report out of the Philadelphia area drove the equities markets lower and Treasury prices higher as investors ran for cover in thin trading on Thursday, August 19.
With high unemployment considered a major obstacle to economic recovery, any sign of weakness in the U.S. jobs market is viewed poorly by investors. On Thursday, the Labor Department reported that seasonally adjusted initial claims stood at 500,000 for the week ending August 14, an increase of 12,000 from the previous week's revised figure of 488,000. The four-week moving average was 482,500, an increase of 8,000 from the previous week's revised average of 474,500.
Also on Thursday, results from the Philadelphia Federal Reserve Bank's business outlook survey for August indicated that regional manufacturing activity weakened following two months of already slow activity. Indexes for general activity, new orders, and shipments all registered negative readings, while firms also reported declines in employment and work hours.
The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a reading of 5.1 in July to -7.7 in August. The index's negative turn marked a period of declining monthly activity for the first time since July 2009.
The Standard & Poor's 500 index declined 2% to 1,072 at midday in New York while the Dow Jones industrial average fell 191 points, or 1.84%, and the 10-year Treasury note rose, pushing the yield down to 2.57% from 2.63% on Wednesday.
"The Philly Fed was a bit of a shocker," said Doug Roberts, chief investment strategist for ChannelCapitalResearch.com in Shrewsbury, New Jersey. "The market was expecting an increase and got a decrease, and the initial claims number was substantially higher, where the market had expected a decrease."
