Unemployment Falls to 6.6%, a Six-Year Low

Unemployment fell to 6.6% in December, its lowest rate since President Reagan took office six years ago, as the U.S. economy created more than 200,000 new jobs for the fourth consecutive month, the government reported Friday.

At the same time in a separate report, the Labor Department said that wholesale prices were unchanged in December, winding up a year in which prices at the producer level fell 2.5%--the steepest such deflation since 1949.

Both reports were far better than expected and taken together they seem to point to a stronger economy this year than has been forecast, with virtually no risk of a return to high inflation.

Economists Impressed

Economists in and out of government were especially impressed by the strong employment showing, with 269,000 new payroll jobs reported by business establishments during the closing month of the year. In all, about 2.4 million jobs were created during 1986--more than 1 million of them during the last four months of the year, said Janet L. Norwood, head of the Bureau of Labor Statistics.

“The new economic year has begun with a roar,” White House spokesman Rusty Brashear said in a statement, adding that the price and job figures buttress the powerful rally in Wall Street that on Thursday took the Dow Jones industrial average over 2,000 for the first time.

Private economists were equally elated by the continued economic strength suggested by the 269,000 new payroll jobs--including the fact that for the third consecutive month new jobs were created in the nation’s trade-battered manufacturing sector. In all, there were 37,000 new jobs in the goods-producing sector and 85,000 new factory jobs since September.

“We are finally getting a sustained drive in manufacturing employment after a 2 1/2-year decline,” said David Wyss, of Data Resources Inc., a Massachusetts forecasting firm whose outlook has been generally pessimistic. “That’s reflective of the fact that the (weaker) dollar is making manufacturers more competitive abroad: The fact they are hiring again suggests manufacturers at last think they are more competitive.”

Irwin Kellner, the chief economist at Manufacturers Hanover Trust in New York, saw vindication of his own generally optimistic forecasts. “Manufacturers would not be adding to their work force if they felt that whatever improvement we were getting at the end of 1986 was only temporary,” he said.

“If people in corporate board-rooms were as pessimistic as some economists, they would simply have lengthened the workweek,” Kellner added.

Workweek Up Slightly

In fact, the manufacturing workweek did increase slightly, to 40.9 hours, historically a high figure. But the workweek for all non-farm employment, which includes services, fell to 34.6 hours. It is in the service sector, where 232,000 of the month’s new jobs were created, that some regional labor shortages have begun to appear.

The steady increases in payroll jobs generally and factory jobs in particular “add up to a good sign for the trade deficit,” added Kathleen Cooper, chief economist for Security Pacific National Bank in Los Angeles.

On the unemployment side, a year-end revision of the Labor Department’s seasonal adjustment statistics brought down the 7% unemployment rate reported earlier for October and November to 6.9%. Total employment reported by the Census Bureau’s monthly survey of about 60,000 households increased by 204,000, unemployment fell by 294,000 and the work force, after large increases earlier in the year, declined marginally, by 90,000.

Beryl W. Sprinkel, the President’s chief economic adviser, generally shared White House elation at the report but warned that future data could show that its figures are “an aberration.”

Jobs Figure at Record Level

Norwood, the statistics bureau commissioner, noted that the percentage of the total civilian population working was 60.9% in both November and December, a record level. The unemployment level for the civilian population, which does not include members of the armed forces residing in the United States, was 6.7%--also the lowest level since March, 1980, before back-to-back recessions forced unemployment above 7% for most of the next six years.

For all of 1986, average unemployment was 6.9%--7% if the armed forces are not counted.

Lower-than-expected food prices helped 1986 close out as a year of deflation, in which the steep collapse in energy prices was the chief ingredient. Before seasonal adjustment, the producer price index, from which the Labor Department computes monthly price changes, fell by 0.8 points to 289.9 in December. The index is developed from a base of 100 in 1967, meaning that a selected cross-section of wholesale goods costing $100 in 1967 now costs $289.90.