Jobless Rate Increase Boosts Markets Dow Hits Record, Climbs Closer To 6,000

Unemployment edged up slightly in September to 5.2 percent, prompting a surge on Wall Street where investors viewed the report as the clearest signal yet that the Federal Reserve will not have to raise interest rates.

The Dow Jones industrial average jumped more than 50 points into record territory, flirting with another milestone, the 6,000 mark. Demand was also strong for Treasury bonds, a good barometer of concern about inflation and interest rates.

Economists said Friday’s surprisingly weak jobs report would strengthen the hand of Federal Reserve Board members who have been opposing any hike in interest rates on the grounds that the economy was already slowing on its own. Some predicted the Fed would hold rates steady through the rest of this year and into 1997.

The Clinton administration, which has made the good economy a centerpiece of its re-election effort, was smiling as well, contending that the Labor Department report depicted the best of all worlds - steady, sustainable growth with low inflation.

The 5.2 percent September jobless rate marked only a slight uptick from the seven-year low of 5.1 percent set in August.

“The economy continues to simmer along without boiling over,” said Labor Secretary Robert Reich. “Main Street ought to be delighted because the rate of unemployment continues to be remarkably low and Wall Street should be delighted because the economy is not overheating.”

Friday’s report came as a surprise to many analysts, who had been forecasting a rise of about 170,000 payroll jobs in September. Instead, jobs fell by 40,000, the first setback since January.

The weakness was centered in manufacturing.

Employment at local schools was down by 67,000, but analysts discounted this decline as a statistical aberration in the government’s seasonal adjustment procedures. The August gain was overstated as schools started earlier than usual, and this depressed the September performance.

Bureau of Labor Statistics Commissioner Katharine G. Abraham said a truer picture was reflected by the fact that school employment is up 157,000 workers from a year ago.

But discounting the statistical quirks, private economists said there were reassuring signs that job market growth is slowing to a more sustainable pace and the Federal Reserve does not need to worry about boosting interest rates.

The central bank at its Sept. 24 meeting didn’t raise rates even though there had been widespread expectations that tightening labor markets would trigger a pre-emptive strike against inflation.