Jobless Claims Jump

The economic news flow this morning is unfavorable for stocks, with a surprisingly weak labor market report only partly offset by a less ominous-looking read on the nation’s inflation picture.

The PPI report, a measure of inflation at the wholesale level, came in better than expected at the headline level, but offered a higher than expected read at the ‘core’ level. The report fails to provide definitive support to any side in the growing market debate about the inflation outlook in a surging commodity-price backdrop.

While tomorrow’s CPI report will provide more color on this issue, I am not buying into the inflation-is-on-the-way narrative; at least not yet. There is way too much slack in the system at this stage to make the inflation threat credible.

I find today’s weak Jobless Claims report disturbing, as it reverses the positive trend of the last many weeks and flies in the face of growing evidence of positive labor-market momentum.

Initial Jobless Claims increased by a greater than expected 27,000 for the week to 412,000; the first reading above the 400,000 level in weeks. Also, the prior week’s reading was revised upwards by 3000 to 385,000. As such, the jump this week is actually even higher at 30,000 from last week’s originally reported level of 382,000. The four-week moving average also increased, but still remains below the key 400,000 level.

The best thing that has been happening in the U.S. economy lately is the labor market turnaround. A reversal of that favorable trend, as today’s weak Jobless Claims report would imply, will be a major setback. But this report is notoriously volatile and erratic on a week-to-week basis. So, I will caution against reading too much into it.

On the earnings front, we had Hasbro (HAS), the toy maker, come short of expectations in the seasonally weak quarter this morning. But the important report today is from the search giant Google (GOOG), which reports after the close today. Revenue growth and cost controls will be the focus, as will be articulation of the company’s growth plans from the new CEO, Larry Page.

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