Disappointing stats on the employment situation reignited worries about the job market, sending stocks spiraling.
Initial jobless claims rose by 15,000 last week, snapping a three-week declining streak. Economists had expected claims to hold steady.
This followed a report from ADP payroll service that private employers cut 33,000 jobs from their payrolls in August. That was just slightly more than the 30,000 drop economists had expected.
The employment reports rattled the market's cage more than usual because Friday is the big August jobs report and investors are worried about what they might hear. Economists expect to see nonfarm payrolls shrink by 75,000.
"Although some of the recent increase in claims reflects technical factors--claims had been around 370k for months until they began to spike in the middle of July—the increase almost certainly reflects deterioration in the labor market," Tony Crescenzi of Miller Tabak wrote in a note to clients. "This deterioration will likely be evident in upcoming employment news."
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Upticks in service-sector activity and U.S. worker productivity, good signs for U.S. companies amid the economic slump, did little to console the market.
The ISM gauge of service-sector activity rose to 50.6 in August, just tip-toeing across the line into expansion territory. Anything below 50 indicates contraction. Economists had expected the measure to hold steady at 49.5.
Productivity surged in the second quarter to a revised annual rate of 4.3 percent, much stronger than the 3.5 percent economists had expected, and nearly double the 2.2 percent gain the Labor Department had initially estimated for the quarter. Unit labor costs contracted by 0.5 percent.
Crude oil dropped more than $2, trading between $107 and $108 a barrel
despite supplies being drawn down last week. Crude supplies dropped by 1.9 million barrels last week. Analysts had expected the supply to rise by 200,000 barrels. The hurricane watch continues with Hanna and Ike looming on the horizon.
Boeing shares skidded after the aerospace giant's largest labor union rejected the company's proposed contract and voted to go on strike.
Investors were also closely watching retailers as August same-store sales reports trickled out.