Stocks in Limbo, Awaiting Rita

Major averages lift midday as investors look beyond signs of Katrina's economic impact.
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Updated from 1:28 p.m. EDT

Economic data was again put on the back burner Thursday as investors monitored Hurricane Rita, with shares advancing midday after the storm was downgraded to Category 4. But while Rita appears to be even stronger than Katrina, evidence of the latter's impact on the economy is still pouring through.

In the week to Sept. 17, jobless claims surged to 432,000, their highest level in over two years. Roughly 103,000 of those claims were related to Katrina, according to the Labor Department. The storm's impact on jobs in the Southeast is so far estimated at 214,000, but the total could very well continue to grow, given filing difficulties.

Still, the headline number of jobless claims is expected to decrease over the coming weeks, because the data account for new claims only, says Ian Shepherdson, chief U.S. economist at High Frequency Economics. "This assumes that Rita does not cause the sort of prolonged chaos seen after Katrina," he says. "We can only hope."

Meanwhile, all the Katrina-related technical difficulties in filing and computing claims is making it harder for the Labor Department to calculate the monthly employment report, which is usually the mother of all economic data.

As for overall economic indications, they were already weakening ahead of Katrina, according to the Conference Board's index of leading indicators. The index dipped 0.2% in August, which was a nudge better than economists' expectations for a drop to 0.3%. However, the July index was revised down from a 0.1% gain to a 0.1% drop.

A drop in the consumer expectations portion of the index led the overall index lower. And this portion is only expected to worsen after the plunge in consumer confidence following Katrina.

But consumers are not the only ones with a bleaker view of the economy. According to the Business Roundtable, corporate leaders see the business outlook worsening in the coming months. Similarly,

CEO Magazine's

index of business confidence dropped 6.5 points in September.

All these weaker economic indications weren't enough to extend Wednesday's rally in Treasury prices. And after a wild morning that saw a modest early decline wiped out by a midmorning surge, which in turn faded, stocks hovered near break-even. In recent action, the benchmark 10-year Treasury bond was down 1/32 in price while its yield stood at 4.18%. The two-year note was flat, with its yield at 3.91%.

Stocks, which fell sharply Wednesday, were hugging the flat line, with market players still closely monitoring Rita's path and oil prices. Crude oil was recently quoted at $67.60 per barrel, up 18 cents, on Nymex. The

Dow Jones Industrial Average

was recently up 0.5%, at 10,425.16 after having traded as low as 10,351 earlier in the session. The

S&P 500

was up 0.3% to 1213.70. The

Nasdaq Composite

was up 0.2% at 2111.75.

Amid signs that the economy is losing steam, there was more evidence of companies getting on the defensive.

Delta

(DAL) - Get Report

said it will cut 9,000 jobs and reduce employee pay, a plan the distressed airline hopes will help it out of bankruptcy.

Northwest

(NWACQ)

, meanwhile, announced Wednesday that it would cut 1,400 jobs. According to the outplacement firm Challenger Gray, the flagging airline industry has now cut over 44,000 jobs this year and is on track to have its biggest job-cutting year since 2001.

Sony

(SNE) - Get Report

also wielded the ax, announcing 10,000 job cuts over the next four years and saying it expects to post a loss for the year.

These numbers will add to jobless claims, but until the impact of Katrina and Rita is fully evaluated, they won't help resolve the debate in the financial markets over whether to give more weight to concerns about economic growth vs. inflation.

In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;

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