The 12,000-claim rise suggests that the economy is slowing and that employers are cutting jobs. The last time initial claims for unemployment insurance were this high was back in November. The latest data does not include millions of unemployed receiving extended insurance, which is paid for by the federal government. Roughly 5.6 million unemployed workers were on this extended insurance as of the end of July.
First things first, this is bad news and has already had a negative effect on today's trading session. Further evidence of a slow day is that economists believed that claims would drop during the past week. This kind of surprise is never welcome by investors and may cause the bears to run and the bulls to hibernate during the trading session.
Taking a look at the bigger picture, this rather nasty surprise holds larger implications for the economy as a whole. The data suggest that the economy is creating fewer jobs than it created in the first half of the year. As a result, the unemployment rate has held steady at 9.5% during the past two months. Simply put, the economy is not strong enough to create new jobs, which means there is less money in the pipeline to help stimulate the economy.
With so many Americans applying for unemployment insurance and millions more on extended insurance, we have to doubt the strength of any perceived recovery. Watch for this doubt to creep in and act as an anchor on the market as a whole.