Employment and Unemployment Numbers: Setting the Tone for the Economy

The Fed's fifty basis point cut on Wednesday was quickly forgotten with Thursday morning's release of the latest unemployment data. The Department of Labor reported that in the week ending Jan. 26, the advance figure for seasonally adjusted initial claims was 375,000, an increase of 69,000 from the previous week's revised figure of 306,000. The 4-week moving average was 325,750, an increase of 10,250 from the previous week's revised average of 315,500.

Initially, the major indices dropped significantly due in part to the news that was coupled with continued fears that credit rating agencies may issue some downgrades in the bond insurance industry. However, a rally off the lows ensued because the data point is being taken into context and is not being interpreted as a sole bearish indicator, but rather it is being looked at as a mixed signal on unemployment. Investors are confounded.

On Wednesday, payroll services firm Automatic Data Processing Inc. (ADP) estimated that the U.S. economy added 130,000 private sector jobs in January. Thus, today's monthly employment report for January is extremely crucial, and will help set the tone for the market's next move. Recession-bound data will show unemployment rising over 5%, while a rate under 5% will show some stabilization in the job market and would be a good sign for the economy.