Dow drops as jobless claims leap to 500,000

Claims for U.S. jobless benefits jumped to the highest level since November and Philadelphia-area manufacturing shrank for the first time in a year, indicating the economy may be slowing faster than forecast.

The reports sent stocks tumbling Thursday, with the Dow Jones industrial average falling 144 points to 10,271.21. All the major stock indexes fell more than 1 percent.

But a separate index of U.S. leading indicators, released Thursday, showed a rise in July for the second time in four months, extending a see-saw pattern that indicates slower growth through the end of the year.

The number of unemployment claims unexpectedly shot up by 12,000 to 500,000 in the week ended Aug. 14, Labor Department figures showed.

The Federal Reserve Bank of Philadelphia's general economic index turned negative in August, signaling contraction. The index fell to minus 7.7 this month from 5.1 in July. It was the lowest reading since July, 2009.

"There's a red flag being waved right now that says, 'Danger,'" said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte.

"Growth is going to slow in the second half and we might face something a little more ominous than that."

The separate leading economic indicators indexed, compiled by the private Conference Board, showed a 0.1 percent increase in July after dropping 0.3 percent the prior month. It measures economic prospects over the next three to six months.

Manufacturing jumped in July but a slowdown in consumer spending will reduce the need to rebuild inventories.