ETFs are showing strong gains Thursday after jobless claims unexpectedly fell to an almost three-year low, signaling an improving labor market.

  • The number of people requesting unemployment benefits last week plunged to a nearly three-year low, bolstering the likelihood that companies will increase the pace of hiring this year. Applications for unemployment benefits fell by 20,000 to a seasonally adjusted 368,000, the Labor Department reported Thursday. It was the third decline in the last four weeks. Applications are now at their lowest level since May 2008. The four-week average for applications, a less volatile figure, fell last week to 388,500. That’s the lowest level since July 2008, the last time the four-week average was below 400,000.
  • Retailers reported solid revenue gains for February, extending the strong spending momentum seen during the holiday season as the economic recovery takes hold. Worries are growing, however, that rising gas prices could sap shoppers’ spending on other items.  On Thursday, Limited Brands, J.C. Penney and Macy’s reported gains that beat Wall Street expectations. Luxury retailers including Saks saw sales surge as the affluent kept spending. The SPDR S&P Retail ETF (NYSEArca: XRT) is up slightly so far today.
  • Productivity grew in the final quarter of 2010 at the fastest pace in nine months, but economists expect a significant slowdown in the growth rate in 2011. Productivity grew at an annual rate of 2.6% in the fourth quarter while labor costs fell at an annual rate of 0.6%, the Labor Department said Thursday. For the year, productivity grew 3.9%, the biggest increase in eight years. However, economists say productivity could grow at just half that rate in 2011 as companies reach the limit on the amount of output they can squeeze out of their existing workforces and start hiring more employees.
  • Activity in the service sectors of the U.S. economy expanded at a faster pace last month, the Institute for Supply Management reported Thursday. The ISM non-manufacturing index unexpectedly rose to 59.7% in February from 54.9% in January. Economists expected the index to increase to hold steady at 54.9%. The employment index rose to 55.6% in February from 54.5% in January. The employment index is closely watched for hints about to the likely strength of the key February nonfarm payroll report to be released on Friday. Industrial Select Sector SPDR (NYSEArca: XLI) is up nearly 2% in early trading.
  • Oil prices eased slightly, dipping below a still-high $102 a barrel this morning on reports of a possible mediation in Libya. The fighting in the region is said to have cut up to 1 million barrels a day of crude oil production. ProShares Ultra Oil & Gas (NYSEArca: DIG) is up 1.4% so far today.

For full disclosure, Tom Lydon’s clients own shares of DIG.

Gregory A. Clay contributed to this article.

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