Labor Report Fuels Inflation Fears Sharp Drop In Claims For Jobless Benefits Rattles Investors
The number of Americans filing first-time claims for unemployment benefits fell by 15,000 last week, an unexpectedly large improvement that increased jitters on Wall Street in advance of today’s unemployment report.
The Labor Department said Thursday that new applications for unemployment benefits totaled 316,000 last week, pushing the claims level to its lowest point since the week ending Aug. 3.
The improvement was much bigger than the 2,000 decline many economists had been expecting and immediately sparked concerns on Wall Street that the economy is continuing to steam ahead.
Investors are worried that a string of reports showing faster-than-expected growth will prompt the Federal Reserve to tighten interest rates to ward off inflationary pressures.
That nervousness was reflected on Wall Street where the yield on Treasury’s benchmark 30-year bond climbed to 7.15 percent, its highest level in two months.
Inflation jitters in the bond market spilled over into stocks as well, pushing the Dow Jones industrial average down by 49.94 to close at 5,606.96.
Analysts said the market was especially nervous awaiting today’s report on unemployment for August. Many economists were expecting strong growth in the labor market would push the jobless rate down to 5.3 percent, from 5.4 percent in July, with payroll employment increasing by 200,000 or more.
While low unemployment has been hailed as a solid achievement by President Clinton in his re-election campaign, markets are concerned that the jobless rate has now fallen to such a low that the Fed will be forced to begin raising interest rates, possibly as soon as their next meeting on Sept. 24.
“The unemployment report will be the key report for the Fed,” said Robert Dederick, senior economic consultant at Northern Trust Co. in Chicago.
He said there was a 50-50 chance the Fed would tighten before the election and a virtual certainty there will be rate increases before the end of the year.
Fed board member Janet Yellen said Thursday the economy was in an “inflationary danger zone” but that she still believed activity will moderate later this year.
During an appearance in Kansas City, Yellen refused to discuss what the Fed would do at its September meeting, but she said, “In my view, a well-timed monetary policy is pre-emptive. It leans against the wind in advance of any buildup of inflationary pressures in order to permit sustained economic growth.”
Another Fed official, Robert McTeer Jr., president of the Fed’s Dallas regional bank, said during an appearance in Houston that the economy was “running hot” at present but that inflation still appeared to be “reasonably well contained.”
Investors have been jittery about the unemployment report since March when unexpectedly strong payroll growth triggered a 171-point one-day slide in the Dow Jones industrial average.
The 15,000 decrease in jobless filings represented the first drop in five weeks. Because of those previous gains, the four-week moving average for claims edged up slightly to 323,500, compared to 323,000 the week before. It was the highest level for the four-week average since the week ending Aug. 3.
During the week ending Aug. 24, 27 states and territories reported an increase in jobless claims while 26 reported declines. The state data is reported a week later than the national data.
The states with the biggest declines were California, down 1,627; Delaware, down 1,564; Michigan, down 1,350, and Ohio, down 1,006.
Tennessee had the largest increase in claims, a gain of 1,061.
The following fields overflowed: CREDIT = Martin Crutsinger Associated Press