U.S. Jobless Rate Creeps Up Despite Expanded Economy

The nation’s overall unemployment rate rose slightly in July to 5.4%, but the economy continued to expand and created 285,000 new jobs, the Labor Department reported Friday.

Job-seeking teen-agers on vacation from school accounted for most of the increase in unemployment.

Because early summer statistics often fluctuate erratically with the teen-age job factor, economists found far more significance in the continued strong job growth reported by the more than 300,000 non-farm business establishments surveyed each month.

They predicted unfaltering economic growth for the near term. The creation of new jobs in July followed a huge 532,000 expansion in employment in June, when unemployment was reported to have fallen to 5.2%, the lowest level in 14 years.

Seasonal Trend

Civilian unemployment in California was 5.4% in July, down from 5.6% in June.

“This economy has an incredible head of steam on it. It just doesn’t quiet down,” said Michael Penzer, a senior economist at Bank of America in San Francisco. He noted that the small rise in unemployment “should be disregarded because it’s seasonal. But everything else is fantastic.”

Along with this year’s growth, however, analysts predicted higher wages, production costs, prices and, inevitably, interest rates.

“Employment growth like this is consistent with economic growth of 4.5% a year,” said Giulio Martini, an economist at the New York investment research firm of Sanford Bernstein & Co. Such a rate is widely expected to be more than enough to force the Federal Reserve Board into severe monetary tightening if it does not slow down.

Figures Revised Upward

Growth during the first half of the year has been estimated at an annual rate of more than 3%, but the Fed has fears of inflationary expansion even with that rate. Expansion with the strong growth in jobs so far this year would therefore be unsustainable, Martini warned.

As evidence of the rapid growth rate, economists noted that the payroll jobs increase in June was sharply revised upward from an earlier reported 346,000 new non-farm jobs to more than half a million. That was the largest single monthly increase since September, 1983, when the economy was barely coming out of a steep recession and unemployment was 9.1%.

In July, 201,000 of the new jobs were in the service-producing sector of the economy, which has employed more than two-thirds of the work force for the past 25 years or so. Goods-producing jobs increased by 82,000, of which 68,000 were in manufacturing.

In testimony before the congressional Joint Economic Committee, Director Janet L. Norwood of the Bureau of Labor Statistics noted that the creation of factory jobs would have been still stronger “were it not for the absence from payrolls of about 15,000 workers in the shipbuilding and lumber industries” who were on strike.

Wages Increasing

Norwood observed that “factory jobs have increased by more than half a million over the past 12 months, with 200,000 of them having been added since March.” Much of this growth was directly related to the nation’s continuing export boom, which in large part is responsible for driving the economy in its sixth year of growth.

In addition to the strong growth foreshadowed in the July employment report, economists warned that wages are now clearly beginning to increase at a substantially faster rate than had been the case as recently as six months ago.

“It’s now unambiguously true that that wages are adding to the inflationary push,” said Roger Brinner of the Data Resources research firm in Lexington, Mass. “I think the economy is already overheated,” he added.

Brinner predicted that the Fed, moving cautiously in an election year, would raise rates gradually rather than crack down harshly to head off higher inflation before it occurs.

Bank of America’s Penzer noted that hourly wages have increased at a 3.7% annual rate so far this year, at a time when other inflation indicators are accelerating even faster. The result, he said, is “another reason for the Fed to go on gradually tightening short-term interest rates.”