Stocks zigzagged in a narrow range Thursday after the number of workers continuing to receive unemployment benefits unexpectedly fell for the first time in 20 weeks.
New jobless claims fell to 621,000 from the previous week's revised figure of 625,000, nearly matching analysts' expectations.
The drop, while small, provided investors a nugget of hope that unemployment could be easing. The data also arrived a day ahead of the government's monthly tally of job losses, one of the most important economic indicators for the stock market. Investors watch those numbers closely since growing unemployment can affect core elements of the economy including consumer spending, retail sales and the housing market.
"Today's trading is quiet," said Kent Engelke, chief economic strategist at Capitol Securities Management. "We're just really waiting to see what tomorrow's data is going to bring."
But enthusiasm over unemployment was checked by concerns about the well-being of retailers after many reported lackluster sales for May.
Many retailers, including Costco WholesaleCOST and Hot Topic HOTT, are reporting bigger-than-expected sales declines in May as shoppers keep their budgets tight. One factor that is likely weighing on results: a year ago, sales benefited from fiscal stimulus checks.
Consumer spending accounts for more than two-thirds of economic activity, so how retailers are faring says a lot about the state of the economy.
The day's news presents a familiar quandary for investors who have been grappling with mixed signals on the economy lately. While some reports indicate the economy's decline is slowing, others show that companies and consumers are still feeling the pain of a deep recession.
The Labor Department reported that productivity, or the amount of output per hour worked, rose at an annual rate of 1.6% during the first quarter, more than analysts had been expecting. Normally an increase in productivity would be a positive factor but in this case the gains were largely a result of the massive layoffs companies made in recent months.
Many investors fear that the incremental signs of a recovering economy, which drove a massive rally in the stock market this spring, have not yet built into a convincing case that the economy has turned the corner.
The market's more than 30% advance since early March was driven by economic data that beat investors' expectations, but the mood was grim at the time. Now that the economy has shown small signs of improvement, the market's expectations are rising and investors are now anxious for more clear indications of growth.
On Wednesday, disappointed investors broke a four-day winning streak in the market and sold stocks on weaker-than-expected reports on factory orders and the services sector. The S&P 500 index dipped 1.4%, while both the Dow and the Nasdaq composite fell less than 1%.
The S&P and Nasdaq hit their highest levels of the year on Tuesday, while the Dow has yet to return to the black for 2009 since the first few days of January.
Investors are likely to remain focused on certain areas that have become worrisome lately: consumer spending, unemployment, rising oil and commodity prices and a weakening dollar.
The dollar has fallen steadily since early March when the stock market's rally began as investor appetite for riskier assets increased. A falling dollar can trigger inflation, and weakens the buying power of American consumers.
On Thursday, however, the dollar rebounded against the euro and the British pound after both the Bank of England and the European Central Bank maintained cautious stances on the economy and kept their benchmark interest rates at historical lows.
Central banks around the world, including in the U.S., have slashed interest rates in an effort to keep borrowing costs low and spur the economy. At the same time, those lower interest rates tend to weaken a country's currency by reducing the yields on cash investments for currency traders.
Both gold and oil prices resumed their three-month climbs following sharp pullbacks on Wednesday.
Light, sweet crude rose $2.51 to $68.63 a barrel on the New York Mercantile Exchange.
Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.66% from 3.54%.
Last week, the 10-year yield surged to a six-month high of 3.75% on worries over mounting U.S. debt loads. Rising long-term yields also have investors worried, since interest rates on mortgages and other consumer loans that are tied to the 10-year Treasury note rise, hampering prospects for increased home sales and mortgage refinancing.
Overseas, Japan's Nikkei stock average fell 0.8%. In European trading, Britain's FTSE 100 pared early gains after the interest rate decisions, recently adding 0.2% in afternoon trading. Germany's DAX index rose 0.3% and France's CAC-40 gained 0.6%.