Stubborn Jobless Claims Are Worth Worrying About

Includes: DIA, QQQ, SFD, SPY
by: Markos Kaminis

On Wednesday, when the Labor Department reported that Weekly Initial Jobless Claims stuck above 400K for a second straight week, it became harder to blame Hurricane Sandy for the issue. Indeed, we questioned whether the storm was completely to blame last week, and with each passing week, it will become a less important factor.

If over the next week or two claims stick above 400K, then the market will be forced to consider whether an important change is occurring in the economy and why. Stocks may have already started to worry about this specific measure, given the trend-turning decline that occurred on Wednesday morning, before stocks closed fractionally higher. You can see this clearly in the activity of the SPDR S&P 500 (NYSEARCA:SPY), SPDR Dow Jones Industrial Average (NYSEARCA:DIA) and the PowerShares QQQ (NASDAQ:QQQ), with the morning dip visible on Wednesday within the five-day chart. Of course, some of the decline could have been attributable to a miss in Consumer Sentiment against economists' consensus expectations; on the slow pace of Leading Economic Indicators; or on some other factor, including Middle East unrest. Additionally, resurfacing concern about Congress' ability to mitigate the fiscal cliff should certainly be a consideration as we enter December.

Chart forPowerShares QQQ

The latest jobless claims count, covering the period ending November 17, showed a 41,000 decrease from the Hurricane Sandy-laden period of the week before, but claims still measured 410,000. Obviously, the storm destroyed property and life, and affected local economies in a meaningful way. Many small businesses were forced to lay off employees as a result. A lot of those employees are probably still unemployed today. So for now, the four-week moving average of jobless claims matters more. The average, however, was approaching 400K as well, at 396,250 through the period. Over the weeks ahead, the storm-related impact will dissipate as New York and New Jersey residents recover.

However, what impact has the fiscal cliff had on hiring and firing? In my estimation, the issue is affecting the economy right now. Many small businesses have effectively frozen their expansion plans, given the uncertainty about forward tax rates and due to the healthcare burden some are being asked to pay now. We discussed this in detail in our report, "Small Businessmen Will Lose Hope Into The Cliff."

The trouble extends beyond small business though, because of economic realities and due to changes in laws and regulations. Obviously, the Hostess Brands' reorganization is going to cost America jobs, approximately 627 or so to be more precise. Also among recent corporate layoff announcements were Smithfield Foods (NYSE:SFD), which is planning a closure and layoffs at a Virginia hot dog plant. Some operators like Papa John's (NASDAQ:PZZA) and Applebee's -- of DineEquity (NYSE:DIN) -- said new healthcare costs will impact how they manage their workforces.

In conclusion, this latest rise in Weekly Jobless Claims is noteworthy and should be watched as the effects of Hurricane Sandy fade. Especially as the fiscal cliff is resolved, we should see how satisfied businesses are based on their investment and hiring activity that follows. And yet, the burdensome economies of Europe will weigh, the disruption in the Middle East will frighten, and a slow moving domestic economy will continue to restrain the labor market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.