Jobless Rate Falls to 6.8%, Signaling Economic Gains
Employment rose strongly and the overall jobless rate fell to 6.8% from 7% in July, the Labor Department reported Friday, providing the first solid evidence that the sluggish U.S. economy may be on the verge of faster growth.
It was only the third time since President Reagan took office in 1981 that unemployment has dipped below 7%.
“The economy started out the third quarter on a hopeful note,” said Irwin Kellner, chief economist for Manufacturers Hanover Bank in New York.
But manufacturing employment continued to shrink slightly last month, suggesting that basic industries are still suffering from the debilitating effects of the nation’s huge trade deficit.
“Maybe it’s a manic-depressive economy,” said Allen Sinai, chief economist for Shearson Lehman Bros., a Wall Street investment firm. “Services and construction are doing very well, but that 20% of the payroll in manufacturing is in deep trouble. Out of that you cannot create a recession, but you also can’t create a boom.”
In the first reliable indicator of the health of the economy last month, the government reported that an estimated 389,000 workers were added to non-farm payrolls. The upturn in employment exceeded analysts’ expectations, even discounting for the effect of 150,000 striking workers who returned to their jobs.
“The latest figures suggest we are on the verge of another spurt in growth,” said Narriman Behravesh, chief domestic economist at Wharton Econometrics in Philadelphia. “Those who are still predicting an imminent recession are simply out to lunch.”
Separately, the government’s barometer of future economic activity provided further confirmation that the economy is not likely to slump. It gained a modest 0.3% in June after it had fallen 0.1% in May.
So far this year, the economy has grown at a 2.5% annual rate, far below the 4% forecast earlier this year by the Reagan Administration.
The Labor Department said the total number of civilian jobs in July rose to a seasonally adjusted 109.9 million as the labor force--those working or looking for work--declined for the first time in three years.
In looking for clues to the economy’s future performance, analysts focus on growth in employment because it usually reflects increases in output and quickly translates into higher consumer spending. But economists pay attention also to the number of hours worked, which continued to fall slightly from an average workweek of 34.7 hours in June to 34.6 hours last month.
Service Employment Up
Service employment continued to leap ahead in July, by 245,000 jobs, led by increases of 70,000 in retail trade and 35,000 in finance, insurance and real estate.
But another 25,000 manufacturing jobs disappeared last month, although construction employment rebounded by 55,000 and helped the goods-producing sector of the economy post a modest gain. Nearly 400,000 factory jobs have been lost since the beginning of the year.
Before the economy can pick up speed strongly, most economists believe, the nation’s beleaguered manufacturing industries must regain markets both here and abroad that were lost to foreign competition, primarily because of the high value of the dollar. The U.S. currency has fallen dramatically against several major currencies from its peak in the spring of 1985, but there has been only modest evidence so far that the trade deficit is about to begin shrinking.
The civilian unemployment rate, which does not include the nearly 1.7 million members of the armed forces stationed in the United States, also fell by 0.2 of a percentage point in July, to 6.9%.
California Rate Climbs
In California, however, the jobless rate jumped to 7.1% last month from 6.5% after falling steadily for four months.
For the nation as a whole, unemployment fell most dramatically among women and blacks, while the rates for men and whites remained largely unchanged.
The traditional advantage adult men held over women in unemployment rates vanished last month, with the Labor Department reporting that 6.1% of adult women were out of work in July compared with a 6.2% rate for adult men.
In a separate report, the Commerce Department said construction spending rose only 0.1% in June, the weakest showing in three months. But the July employment report suggested that construction picked up speed again last month.
