Initial Jobless Claims

Yesterday, we got a one-two punch to help send stocks lower on the session. The first economic data point to hit the street was initial jobless claims. Initial jobless claims measure the actual number of people who have filed for unemployment benefits for the first time (if they have met the five criteria for inclusion). The number came in unexpectedly high at 500,000, which is also a significant psychological number. Below is a chart of the series which comes out weekly. This is the largest number in almost a year and is causing some serious angst among investors as double dip fears rise. Without job creation the largest part of our economy, consumption, is likely to suffer as a result.

Then the second punch came with the release of the Philadelphia Federal Reserve economic index which came in at -7.7%. A positive 7% was expected. This index gauges manufacturing activity in the Tri-State area of Philadelphia and for the first time in over a year the index showed a slowdown. This is not good news if the manufacturing sector, which helped raise the economy from the depths of the recession, is now starting to roll over.

These are only two data points, on one day during the summer doldrums, but it is not a good picture. We were worried about the possibility of continued fundamental deterioration in the economy, and started to position our portfolios accordingly. We will certainly be on the watch for improvements in these numbers but for right now it seems risk is elevated, and we must manage to that.