The nation’s unemployment rate bounced up to 5 percent in June from the lowest level in almost 24 years, but economists said job seekers’ prospects remain good. Wall Street applauded the report as a sign inflation continues in check and sent stock prices to a record high.
Joblessness rose from a seasonally adjusted 4.8 percent in May, the lowest since late 1973, the Labor Department said Thursday.
The stock market rallied, taking the report as further confirmation that a sharp economic slowdown in the April-June quarter has reduced the immediate prospects of both faster inflation and higher interest rates.
The Dow Jones average of industrial stocks set a record, advancing 100.43 points to close at 7,895.81. That beat by 99 points the mark set June 20.
One day after the Federal Reserve decided to hold short-term interest rates steady, strong demand pushed down the yield on 30-year Treasury bonds - a benchmark for long-term borrowing costs - from 6.71 percent to 6.62 percent, the lowest since February.
“The economy remains on solid footing,” said Janet Yellen, chairwoman of President Clinton’s Council of Economic Advisers. “Unemployment hovers in a decades-low range. Jobs are being created at a record pace. And there are still no signs of inflationary pressures.”
Despite the unanticipated upward blip in unemployment, economists said the job market remains strong. They said the rate, after falling since January, probably has stabilized and will fluctuate within one or two tenths of a percentage point around 5 percent for the rest of the year.
“The economy’s cooled off and that should be consistent with a stable, but still low, unemployment rate,” said economist David Wyss of DRI-McGraw-Hill in Lexington, Mass. “Conditions are still tight. If you can’t find a job now, you’ve got real problems.”
On Wednesday, Federal Reserve Chairman Alan Greenspan and his colleagues opted for no change in interest rates, apparently convinced economic growth slowed markedly from a decade-high 5.9 percent annual rate in the first three months of the year to around a 2 percent rate in the second quarter.
That rate of growth, while providing continued prosperity, probably wouldn’t cause much acceleration in inflation, which remains at the lowest sustained level since the 1960s.
“No wonder Chairman Greenspan decided to stand pat,” said economist Sung Won Sohn of Norwest Corp. in Minneapolis.
However, newly released minutes of the Fed’s previous meeting, on May 20, showed policy makers baffled by the “surprisingly benign behavior of inflation in an economy that had been operating at a level approximating full employment.”
They voted 9-1 for a policy directive biased toward higher rates - a preference that wasn’t acted upon. The dissenter, Federal Reserve Bank of Richmond President Alfred Broaddus, asserted “the strength of investment demand” required an immediate increase in rates to prevent inflationary pressures from developing.
The Labor Department said employers added a seasonally adjusted 217,000 jobs to payrolls in June, a bit below the 236,000 average for the first five months of the year.
Only 151,000 of the jobs came in private industry. Economists said a fluke in adjusting for teachers quitting work for the summer created an abnormal seasonally adjusted gain of 49,000 jobs.
Job growth in service industries, particularly health care, slowed in June despite continued strong growth in computer services, engineering and management services. Factories added a modest 14,000 jobs, while construction payrolls shrank by 2,000.
In a separate report, the department said the number of first-time claims for unemployment insurance rose by 5,000 to 337,000 during the week ended June 28.
In another sign of moderation, average hourly earnings of nonsupervisors rose by 4 cents to $12.22 in June, bringing the increase for the second quarter to 8 cents, somewhat lower than the quarterly increases for the past year.
The Labor Department also said Thursday that average weekly hours worked rose to 34.7 last month from 34.6 in May, and manufacturing overtime decreased to 4.7 hours from 4.8 hours.
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