Jobless Claims Drop Again, GDP Revised Lower

New claims for unemployment hit a 3 year low last week, suggesting that the economy is beginning to gain momentum despite third quarter growth being revised down. Initial claims for unemployment benefits dropped 4,000 to a seasonally adjusted 364,000 last week. Last week’s drop in unemployment benefits claims is the third straight weekly drop and is the lowest since April 2008.

“The employment situation continues to show strong signs of a recovery and goes against the grain of what people felt four months ago,” said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York.

The jobs data helped shift the focus away from a separate report from the Commerce Department showing GDP grew by 1.8% in the third quarter. GDP was previously reported to have grown by 2%, but saw healthcare spending drop sharply in the third quarter.

Despite being revised lower, the GDP for the third quarter was up from the 1.3% growth seen in the second quarter.

Consumer spending was revised to 1.7% from 2.3% because of adjustments to healthcare services, especially those in nonprofit hospitals. Durable goods saw an upward revision to 5.7% from 5.5%. Business inventories dropped less than expected with a $2 billion drop versus an estimated $8.5 billion. If you take out inventories, the economy grew by an adjusted 3.2%, down from 3.6%.

Overall the market is reacting positively to the jobs data and opened up slightly higher this morning. As of 9:50 am EST, the Dow is up 40 points, the Nasdaq is up 17 points and the S&P is up 6 points. Expect volume to be light today as the holiday weekend approaches.

European Debt Crisis and Lower GDP Rules the Stock Market Today

The euro zone debt crisis continues to weigh heavily on investors today and has sent the markets down again. Each of the major indexes are off about 0.5% in midday trading. Another thing weighing on the markets, is the revised GDP numbers for the third quarter. It had been previously estimated GDP would see growth of 2.5%, but it has now been revised down to 2%. This is the Commerce Department’s second estimate, let’s hope they don’t revise it again later. If this growth holds true, it will be a step-up from last quarter’s growth of 1.3%.

The debt crisis in Europe is a huge problem that needs to be fixed and fixed sooner rather than later. Every day this crisis goes on is just more uncertainty in the markets and more risk of the crisis spreading even more. Many investors believe the ECB needs to take more action and try things until they find something that works.

Short term yields in Spain jumped this morning to over 5%. These same yields were at 2.3% last month. The markets were hoping to get some details on the new prime minister’s austerity plans, but Mariano Rajoy will not give details until he is sworn in right before Christmas. These levels on the yields are worrisome as Greece and Portugal were at these same levels before being bailed out by the rest of the eurozone. The problem here, is that Spain maybe to big to save.

Euro zone banks’ demand for funding surged to a two-year high today as U.S. funds cut their lending. The sovereign debt crisis has left credit markets frozen and the ECB as the only available funding for most banks.

The equities and financial markets are going to remain very volatile in the near future as the euro zone debt crisis adds a lot of uncertainty to the markets. The question is, can they fix it? They’ve been trying for a while now, and if any more countries need bailouts investors will start wondering if the entire euro zone is on the brink of collapse.

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