Strong Job Gains Cited as Unemployment Dips to 6.8%
The nation’s economy chalked up strong across-the-board job gains in December as overall unemployment dipped from 6.9% to 6.8%, the Labor Department reported Wednesday, suggesting to some analysts that the economy is picking up steam as the new year begins.
“The growth in employment is extremely vibrant,” said Allen Sinai, chief economist at Shearson Lehman Bros., a Wall Street investment firm. “This is the best employment report (since the economy was booming in early 1984) and reflects the seeds of continuing higher growth.”
Total employment in December rose to 108.2 million as the ranks of the unemployed shrank from 8.16 million in November to 8.02 million last month.
Gains in Manufacturing
Analysts were particularly cheered by the third straight monthly gain for manufacturing jobs, which grew by 45,000 and continued to rebound from the blue-collar job slump of most of 1985. Workers put in longer hours during December and average earnings were up strongly. Economists now expect reports of solid gains in industrial output and personal income.
“Manufacturing jobs were being lost at a rate of 40,000 a month from June to September,” noted Lyle Gramley, chief economist for the Mortgage Bankers Assn. and a former Federal Reserve Board member. “The last three months they have averaged about a 40,000-per-month gain. That is a very large turnaround.”
The unexpectedly strong employment gains even persuaded Wall Street’s traditionally bearish Henry Kaufman of Salomon Bros. Inc. to reverse an earlier prediction that weak economic growth would force the Fed to lower the discount rate--the interest rate it charges banks and savings institutions.
Biggest Drop in Dow
The stock market reacted intensely to Kaufman’s change of heart. Fears that recent declines in interest rates are over caused the biggest one-day drop ever in the Dow Jones industrial average.
Citing an increase of 320,000 in non-farm payroll employment, Kaufman said: “This and other data suggests that December income and production statistics to be announced in the next few weeks will also be quite strong.”
The White House, cheered that the unemployment rate had fallen to its lowest level since President Reagan took office five years ago, predicted further employment gains in the months ahead. “With this strong year-end finish,” said spokesman Larry Speakes, “we can reasonably expect to exceed the Administration’s forecast of a 6.7% average unemployment rate for 1986.”
But the AFL-CIO, complaining that millions of unemployed workers are hard-pressed to make ends meet, pointed out that more than 5 million of the 8 million jobless workers “are getting no help whatever from their government” in unemployment compensation.
‘Discouraged Workers’
And Janet L. Norwood, the commissioner of labor statistics, told the congressional Joint Economic Committee that the number of “discouraged workers” remains at high levels. She said 1.2 million people say they have given up looking for a job “because they thought their search would be fruitless.”
Although many economists still believe that the economy will remain sluggish, even some of the more pessimistic analysts were encouraged by the year-end employment gains.
“The economy ended up the year on a decent note,” said Robert Gough, a top analyst at Data Resources Inc., an economic forecasting firm in Lexington, Mass., which predicts only minor improvement in the economy during the first half of this year. “You have to admit that there was no bad news at all in the latest report. That’s all very encouraging.”
Others More Optimistic
Other economists were much more optimistic. “The economy appears to be on a path to much stronger growth,” said David Levine, chief economist at Sanford C. Bernstein & Co., a New York investment firm. “I think there’s a good chance that the economy began another liftoff sometime between October and the end of the year that should continue well through 1986.”
Although unemployment was falling at the end of the year, for 1985 as a whole unemployment averaged 7.2%, slightly higher than the average 7.1% rate in 1984.
The civilian unemployment rate, which does not include in its calculations the 1.7 million members of the armed forces stationed in the United States, also dipped by 0.1 of a percentage point to 6.9%.
In California, the civilian unemployment rate fell sharply from 6.8% to 6.5% in December. Out of an estimated statewide labor force of 12.7 million people, 11.9 million were employed and 828,000 were jobless, the Bureau of Labor Statistics reported.
Nationally, the average weekly hours worked by those employed rose from 35 hours to 35.1 hours. Manufacturing hours jumped from 40.7 hours to an unusually high 41 hours, and overtime in manufacturing rose from 3.4 to 3.6 hours. Average weekly earnings were up a strong 1.2% to $309.04.
“This is the first time for a year and a half all the various pieces have moved up in a consistent direction,” said Stephen Roach, an economist at Morgan Stanley in New York, “which leads me closer to the tentative conclusion that the worst is over for industrial America.”
