Jobless Rate At 4-Month Low But Wall Street Greets Good News With Confusion
Jobs boomed at department stores, banks, brokerage companies and factories during March, trimming the national unemployment rate to 5.2 percent, the lowest level in four months, the Labor Department reported Friday.
But the good news - 175,000 new jobs added to business payrolls - wrought confusion in a financial community already battered by big losses in stocks during a recent plunge that has threatened to bring the bull market to an end.
The Dow Jones Industrial Average, on a roller-coaster ride all day, first dropped more than 70 points, recovered rapidly and finished with a gain of 48.72 for the day, closing at 6526.07. Still, the Dow index has lost virtually all 1997’s solid gains since the Federal Reserve Board boosted interest rates March 25 to stem potential inflation.
Although stock investors might be temporarily reassured, a rise in the interest rates for Treasury bonds showed that the bond market remains jittery about inflation. The Treasury 30-year issue, a key barometer, closed Friday at a yield of 7.12 percent, up from 7.06 percent the day before.
Inflation has not reared its head, but most economic experts are betting on another pre-emptive strike by the Fed to drive up interest rates in May.
“The economy hasn’t slowed yet - it is still going strong,” said Lyle E. Gramley, chief economist for the Mortgage Bankers Association and a former member of Federal Reserve Board. Echoing the view of Fed Chairman Alan Greenspan that inflation is a serious potential threat, Gramley predicted the board will bump up interest rates again “to avoid trouble later on.”
By raising the cost of borrowing for consumers and corporations, the higher interest rates are expected to slow down purchasing and investment, thus taking the edge off the robust economic expansion that has been under way for six years.
The March jobless rate of 5.2 percent, down from 5.3 percent in February, is evidence of a “healthy economy,” said White House spokesman Mike McCurry. Indeed, the new figure put the unemployment rate at its lowest level since an identical figure of 5.2 percent last October.
It also raised the administration’s hopes that unemployment can edge down to 5 percent or lower - a level not seen since 1989. “We can actually have 5 percent or lower unemployment in this country without having inflation if we do it with discipline,” President Clinton said in a statement.
But most economists believe a continued tightening of the credit supply by the Fed could result in a climbing unemployment rate by the end of the year.
Friday’s report was filled with indicators of strong business activity. Unprecedented numbers of people are streaming into the work force as new jobs are generated: 63.8 percent of the population aged 16 and over was working, a new record.
Factory overtime averaged 4.9 hours a week last month, the highest level since the government began keeping these records in 1956. And factory employment rose 16,000, following a pattern of increases for the past six months.
But the March job gains came across a broad spectrum of industries. Retail trade added 43,000 workers, with big increases in department stores and food stores, according to the Labor Department.
The services sector boasted 111,000 new jobs, with advances in computer and data processing services, health services, and temporary jobs through employment agencies.
The jobless rate has been well below 6 percent for more than two years, confounding many economists who said that figure was a so-called “natural rate of unemployment.” Dropping below that level would trigger wage hikes and inflationary surges, they said.
However, their baleful predictions haven’t come true. The Fed’s boost in interest rates last month was a tactic to slow the economy gradually and forestall future inflation.
“Interest rates already are very high in real terms … and there are no signs of inflation,” said Gordon Richards, chief economist for the National Association of Manufacturers.
“You can look through the (employment) reports for evidence of wage inflation and tightening labor markets, but it is hard to see,” said Dean Baker of the Economic Policy Institute, a liberal think tank.
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