U.S. Jobless Rate Tumbles To Seven-Month Low Economy Shifts Into Low Gear After Blistering Second Quarter

The nation’s unemployment rate hit a seven-month low last month propelled by new jobs in construction, health care and real estate. Despite the improvement, analysts said the economy is growing only slowly.

“This is an economy that is in a subdued, sedate growth phase,” said Robert G. Dederick, economic consultant at Northern Trust Co. in Chicago. “But it is a growth phase.”

The jobless rate edged down to 5.5 percent, matching the figure of last March, the Labor Department said Friday.

Many economists believe that since an economic “soft landing” - moderate growth without inflation - is the target of Federal Reserve policy, the central bank probably will leave interest rates unchanged for now.

“This is consistent with a soft-landing scenario … but soft landing also means a soft economy,” said Sung Won Sohn, an economist with the Norwest Corp. in Minneapolis. “So far this year, job creation is only half the rate achieved in 1994, so economic growth has slowed considerably.”

“It’s steady as she goes,” Labor Secretary Robert B. Reich said of the jobless rate. “It’s the 14th consecutive month below 6 percent, with no wage-push inflation in sight.”

The economy created more than 100,000 new jobs - a figure that would have been even bigger except for a strike that idled 26,000 aircraft production workers.

Wall Street reaction was mixed. Broad stock market indexes were mostly higher, with the Dow Jones industrial average rising nearly 17 points and reaching a record level for a second straight day. Bonds, however, lost ground over investor concerns the low jobless rate might jeopardize further rate cuts.

In its report Friday, the Labor Department said the jobless rate dipped to 5.5 percent for the first time since last March. It had stood at 5.6 percent in August and September and hasn’t been as low as 5.4 percent since February.

At the same time, the report said jobs grew by 116,000 and would have grown by more except for the strike that idled 26,000 aircraft production workers.

On the other hand, the department revised its initial 121,000 estimate of September payroll growth to just 50,000. That meant job creation averaged just 95,000 during the two months, compared with 263,000 in August.

After slowing to an anemic 1.7 percent annual growth rate in the second quarter, the nation’s economy shot up to a 4.2 percent rate during the next three months, partly the result of a Fed interest rate cut in July.

However, recent reports suggest the economy is slowing again to a more sustainable pace of 2.5 percent to 3 percent. Even if it were to slow further, many analysts maintain the Fed would wait until after President Clinton and Congress complete work on a budget-reduction plan before deciding whether further rate cuts were needed to stimulate growth.

The strike at the Boeing Co. contributed to a 21,000 decline in manufacturing payrolls in October. But analysts noted the drop was the sixth in seven months and maintained that industrial production would remain soft until businesses trim excess inventories.

Service industries, on the other hand, continue to create jobs, although at a slower pace than earlier. Payrolls increased 57,000 in October and 67,000 in September, well below last year’s monthly average gain of 117,000.

Although the health industry came up with 27,000 new jobs, business services dropped 10,000 slots after large back-to-back increases.

Finance and real estate employment grew by 18,000, partly reflecting declining mortgage rates, which boosted residential construction. That, in turn, helped produce 28,000 additional construction jobs.

The report also showed that average hourly earnings rose 6 cents in October to $11.59 an hour, just 3 percent higher than a year earlier.