Friday, August 27, 2010

Fall in Unemployment Benefit Claims in the US

In the present week, the US economy saw a steady decline in the number of claims for unemployment benefits. In view of this decline, Thursday morning showed stocks at relatively higher prices, bringing some respite to the market’s worries about the slowing economic growth. For instance, the industrial average for Dow Jones, increased by 19 points during the morning. There was an increase, in general, in the broader indexes as well.

This news however did little to bring optimism back in the market. The total number of unemployment benefit claims remained at a high level. There is a predominant worry among the investors regarding the constantly high unemployment rate of 9.5%. The reluctance among employers to hire workers is also a cause for vexation in the market. Even though the claims have come down by a certain percentage in comparison to the staggering numbers in the previous week, they still seem to be at overwhelming levels.

The first-time claims for unemployment benefits dropped to 473,000 last week for the first time last week after crossing the 500,000 mark for the first time since November, in the week preceding the week in question. According to Thomson Reuters, the drop that was anticipated was at a modest 490,000.

In a strong economic condition, the weekly claims are usually less than 400,000. However, the latest statistics in job claims reveal that hiring in the economy has been weak. In March 2009, when the recession was at its peak, the claims were as high as 651,000 per week.

Nevertheless, on the positive side, this week saw a noticeable decline after three consecutive weeks of increasing claims. The report also slightly allayed fears of the economy falling into a recession for a second time, considering that there were numerous economic indicators that implied a very slow growth rate in the near future.

The biggest hurdle that is keeping the economy from a faster recovery is the fact that unemployment rates are still high. People fearing the loss of jobs in the near future are holding back expenditures, which implies an overall low spending level in the economy. Companies have slowed the hiring process, due to the upcoming financial regulations and various health care reform costs, and because of the uncertainty surrounding taxation. Consumer demand is another worry.

For every two stocks that fell on the New York Stock Exchange, three stocks rose, bringing the volume up to 120 million shares for the day. Bond prices however didn’t waver much, showing clearly that there was still a great section of the economy that would take time to get comfortable and become positive about the latest report, and would still want to rely on government debt for security. The yield on the ten year treasury notes, which helps in setting interest rates on various consumer loans including mortgages, showed a slight increase from 2.54 per cent to 2.55 per cent towards the end of Wednesday. Long-term bond yields remain at almost the same levels, though at levels which haven’t been recorded since the first quarter of 2009 when stocks hit their lowest of more than a decade. Even though lower interest rates are supposed to stimulate spending in the economy, it is not happening in the US right now as people are fearing a possible loss of their jobs, so are saving instead.

So what is an investor to do? Investing in quality high yield stocks is a way of dipping your foot in the investment waters. Not just electric or gas utilities, but other industries, which pay CD beating yields. Lists of these investments, including dividend increasing stocks, can be found at

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