Jobless Rate Falls to 5.2%, Lowest Level in 14 Years

The nation’s unemployment rate fell sharply from 5.5% in May to 5.2% in June, the lowest jobless level in more than 14 years, the Labor Department announced Friday.

The report, reflecting considerably more economic strength than most analysts had expected after nearly six years of uninterrupted expansion, showed the creation of 345,000 jobs in June. Jobs increased in all sectors: manufacturing, construction and services, especially transportation and retail and wholesale trade.

Economists found the continuing buoyancy of the economy nine months after last October’s market crash to be extraordinary. But they also warned that such solid growth is verging on a boom, which could lead to higher inflation and higher interest rates.

Those fears apparently drove Wall Street on Friday. The Dow Jones industrial average slumped 16.54 points and interest rates rose on the credit markets.

Market fears aside, an elated President Reagan paid a surprise call on the White House press room to cite the strong showing as yet another triumph for the economic policies of his Administration, which he said has to date created 17 million new jobs.

“As they sit around their kitchen tables, more Americans are planning for their future, not desperately searching the want-ads for a job,” Reagan said, reading from prepared notes. “The American model--low tax rates, deregulation and privatization--are the policies being emulated around the world,” he added. “Today’s news is more solid evidence that the policies of this Administration work.”

Reagan was accompanied by Labor Secretary Anne Dore McLaughlin, who said the employment figures should have a positive impact on the stock market. “ . . . As we’ve watched the unemployment figures, we see no signs of inflation at this point at all. We see long-term moderate decline in the unemployment rate . . . so it shouldn’t be inflationary.”

The June statistics lent some support to that view. Despite fears of some economists that the economy has hit the inflationary level of “full employment,” hourly wages for the month were unchanged, and average weekly hours worked moved up by only 0.1 of an hour to 34.8 hours.

Also, the large 0.3% decline in the reported unemployment rate may have been exaggerated by the Labor Department’s seasonal adjustment method, which in May and June is sometimes confounded by the fluctuating numbers of high school and college students who seek summer jobs.

May Figures Rose

Nevertheless, June’s figures showed a sharp improvement from May’s. During May, unemployment had increased--from the earlier 14-year low of 5.4% to 5.5%.

By another measure, which excludes from the survey members of the armed forces stationed in the United States, civilian unemployment in June was 5.3%, the lowest since the May, 1974, reading of 5.1%. In California, with a large youth population susceptible to seasonal fluctuations, civilian unemployment in June fell sharply to 5.6% from the 6.3% reported the month before.

Some economists predicted imminent inflation if employment improvement continues.

“The economy is overheating,” warned Frank McCormick, senior economist at Bank of America in San Francisco. “The very strong payroll increase has occurred at a time when I think the economy has already gone beyond full employment.”

Believes Fed Will Act

In common with other analysts, McCormick said he believes that the Federal Reserve will act soon to push up short-term interest rates, as it already has done several times since the end of winter, to head off an inflationary surge.

“The problem is the inflationary thrust,” said Allen Sinai, chief economist for The Boston Co., a subsidiary of the Shearson Lehman Hutton investment firm. “This will make it easier for the Fed to tighten as soon as there is any unwelcome inflation news.”

He called the economy’s momentum “extraordinary.”

Analyst David Wyss of Data Resources Inc., in Lexington, Mass., referring to the perverse logic of markets that interpret good news in the present as an omen of bad news in the future, said of the June figures: “This is not a reason to panic, but this is a reason for the Fed to tighten. They ought to raise the discount rate.”