Joblessness Drops to 5.5%, Lowest Level Since May, ’79

The nation’s overall unemployment rate edged down another tenth of a percentage-point in March to 5.5% of the work force, the Labor Department reported Friday--a sign that the economy is continuing to grow at a relatively rapid pace despite last October’s stock market crash.

The number of payroll jobs rose by 262,000 last month, after a stunning 517,000-job increase in February. The jobless rate for March was the lowest the government has reported since May, 1979.

The increase in the number of payroll jobs was surprising to some analysts. Economists had speculated that the February job figures might have been somewhat exaggerated and would be offset somewhat by far weaker employment gains in March.

With Friday’s figures, however, there was concern among some economists that, if job growth continues at the current pace, it might lead to labor shortages and pressures for larger wage increases--a development that could exacerbate inflationary pressures later this year.

Lyle Gramley, a former Federal Reserve Board governor who now is chief economist for the Mortgage Bankers Assn. in Washington, said that the economy is “entering a danger zone” that will prompt the Fed to watch the situation unusually closely.

“When you’ve got demand for labor this strong and the unemployment rate way down, it means that later this year we may be going to see significant (inflation) pressures,” Gramley said.

He predicted that the Fed may soon be forced to tighten its money and credit policies--possibly by raising interest rates slightly. “I would suspect that the beginnings of tightening action by the Federal Reserve lie very, very close,” he added.

David Wyss, economist for Data Resources Inc., a Lexington, Mass., consulting firm, agreed. “We’re now to the point where the Fed can be supporting the dollar instead of supporting the economy,” Wyss said.

Lower Bond Prices Seen

Wyss predicted that the bond markets, which have shown increasing apprehension over the inflation outlook recently, would react adversely to Friday’s statistics when they reopen on Monday. The markets were closed in observance of Good Friday.

Separately, the Commerce Department reported that spending on new construction edged down slightly between January and February, falling 0.3% to a new annual rate of $391.5 billion. The decline followed a 2.8% drop in January.

The Labor Department’s report showed that the unemployment rate for California plunged to 5% in March after adjustment to reflect seasonal patterns, down from 5.4% in February. The number of persons who reported themselves out of work fell to 704,000, from 753,000 in February.

The bulk of the new employment gains in March were in the service and construction sectors of the economy--a development that analysts said suggests an increase in part-time hiring for service jobs in the face of a shortage of workers there.

Analysts were unable to reconcile the robust growth of jobs in the construction industry in the face of declining spending on building projects reported for February.

Workweek Declines

The number of jobs in the manufacturing sector remained essentially unchanged and the length of the average workweek edged down slightly, suggesting that manufacturing firms were successfully working down excessive inventories accumulated in January.

Compiling the statistics from payrolls is the most accurate way the government has of measuring job growth in the economy.