Stock futures rise, try to build on late-day surge

June 3, 2010 6:23:35 AM PDT
NEW YORK (AP) - Stock futures rose Thursday following fresh signs that the domestic economy is improving, though the new data fell short of forecasts. New data showed initial claims for jobless benefits dipped last week, while private employers added workers last month. A third report said productivity rose in the first quarter, though gains were revised lower from a previous estimate.

Reports on the service sector and factory orders due out later Thursday are also expected to show the economy is getting stronger.

Investors are trying to build on a late-day rally that sent the Dow Jones industrial average up 225 points Wednesday. It was the second straight day traders made big moves in the waning moments of trading. On Tuesday there was a steep sell-off just before the close.

Overseas markets rose Thursday following Wall Street's lead in the previous session.

Ahead of the opening bell, Dow Jones industrial average futures rose 47, or 0.5 percent, to 10,279. Standard & Poor's 500 index futures climbed 5.90, or 0.5 percent, to 1,102.60, while Nasdaq 100 index futures rose 3.75, or 0.2 percent, to 1,882.75.

Fewer workers were laid off last week. Initial claims for unemployment benefits fell by 10,000 to a seasonally adjusted 453,000. That is just shy of the 450,000 forecast by economists polled by Thomson Reuters.

It was the second straight weekly decline in claims. But claims still remain above the level that economists say would indicate sustained jobs growth. High unemployment remains a key obstacle for a strong recovery. Upcoming jobs reports are expected to show some continued improvement.

Payroll company ADP said private employers added 55,000 jobs in May. That's just shy of the 60,000 forecast by economists.

However, ADP revised its April data, saying employers actually added 65,000 jobs during that month. That's more than double the previous estimate that 32,000 jobs were created. The big revision has helped to stem any disappointment over the worse-than-expected May figures.

The ADP report comes a day ahead of the Labor Department's key jobs data. ADP data is often considered a barometer for the strength of the government's report. However, Friday's jobs report provides a fuller picture because it also includes public sector employment.

Economists forecast 513,000 jobs were added in May, compared with 290,000 added a month earlier. It would be the biggest jump in 26 years, but as many as 300,000 of the workers hired in May are expected to be temporary positions to help conduct the U.S. census.

Hiring has not picked up on a sustained basis, in part, because companies are finding ways to become more efficient. Productivity grew at an annual pace of 2.8 percent during the first quarter. That's below the previous estimate of 3.6 percent, but still indicates companies' output is growth for every hour worked.

Productivity jumped 3.7 percent during 2009, which was the fastest growth in seven years.

Analysts say that eventually employers can no longer wring out more productivity from current staff and have to start hiring new workers. That was seen in the ADP report and insight into whether there is likely to be more hiring in the coming months could from a key report about the service sector.

The Institute for Supply Management's service sector index likely crept higher to 55.5 in May from 55.4 a month earlier, according to economists polled by Thomson Reuters. It would mark the fifth consecutive monthly gain.

Any reading above 50 indicates growth.

The report, due out at 10 a.m. EDT, is considered a key gauge for the health of the jobs market because the service sector accounts for 80 percent of all workers outside of farmers.

A recovery in the service sector has been a bit slower than manufacturing, so continued signs of improvement should provide investors with confidence that the economy is strengthening.

While the service sector slowly recovers, manufacturing continues to show some of the most consistent growth coming out of the recession.

Economists forecast factory orders rose 1.8 percent in April after climbing 1.1 percent in March.

There is some trepidation that the manufacturing sector could face a slowdown because of the rising dollar and a potential slowdown in Europe's economy. A stronger dollar makes it more expensive to sell U.S.-produced goods overseas. Also, demand could drop in Europe where countries like Greece, Spain and Portugal are wrestling with mounting debt problems.

The euro remained above a four-year low it hit on Tuesday. The euro, which has become an indicator for confidence in Europe's economy, was flat at $1.2254. It has been trading in a tight range throughout the day.

With investors moving into riskier assets, bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.42 percent from 3.35 percent late Wednesday. Oil prices rose, while gold dipped.

Overseas, Britain's FTSE 100 gained 1.6 percent, Germany's DAX index rose 1.6 percent, and France's CAC-40 climbed 2.2 percent. Japan's Nikkei stock average rose 3.2 percent.