Unemployment dropped 0.2 percentage points to 5.3% in September after two months of increases as the nation’s economy created a moderate number of new jobs, the Labor Department announced Friday in a report that came as welcome news to the financial community.
On Wall Street, traders greeted the report as a sign of economic stability and responded with a flood of buy orders. The Dow Jones industrial average jumped 42.5 points, bond prices rose and interest rates fell.
The addition of only 255,000 new jobs in September suggests that “the economic rate of growth is indeed slowing, and this means the economy is not overheating and the course of interest rates should head down,” said Irwin L. Kellner, chief economist at Manufacturers Hanover in New York.
Earlier this year, payroll jobs were being created at an average rate of more than 300,000 a month, and analysts feared that a continuation at that level would severely tighten the labor market, spurring inflation and prompting the Federal Reserve to drive up interest rates as a countermeasure.
Analysts said it was particularly noteworthy that even the total of 255,000 new jobs was inflated. It included thousands of returning schoolteachers, who are counted as unemployed in the summer if they work on nine-month contracts.
Civilian unemployment in California was 5.2% in September, compared to 5.6% in August, 5.4% in July and 5.6% in June.
The slight downward move in unemployment toward the 14-year low of 5.2% was hailed as a political boost for Republican presidential nominee George Bush only one month before the general election. Bush has cited the low jobless rate as a major GOP achievement in his campaign against Democrat Michael S. Dukakis.
In remarks to reporters as he prepared to leave for a Bush campaign event in Detroit Friday, President Reagan declared: “We talk about the record 70 months of economic expansion, but these figures tell the real story that people can understand. They mean paychecks, school clothes and families that can plan a brighter future. That’s what George Bush and Dan Quayle stand for and that’s what the Administration has worked for in the last eight years.”
Market analysts were cheered by the fact that private sector payroll employment increased by only 142,000 new jobs, if government employment, inflated by the teacher influx, was discounted.
Manufacturing employment declined by 18,000 jobs, suggesting a gradual slowdown in the rate of domestic consumption.
While that factor was seen as a sign that the economy was easing off the fast track, some economists noted that indicators are still in conflict on that point. Other reports have shown backlogged factory orders, both for export and for domestic consumption.
“Orders are up, factory hours are up,” said Bruce Steinberg of the Merrill Lynch brokerage firm in New York. The job decrease “flies in the face of everything else we know.”
Analyst David Wyss of Data Resources Inc. in Lexington, Mass., speculated that in some labor markets, the employment pool may be so tight that smaller companies are virtually unable to hire new workers, a situation that in the past has been an immediate precursor of rapid wage inflation.
So far, however, there is no firm evidence that that is happening. Hourly earnings increased a slight 0.5% from August to September.
The 5.3% nationwide unemployment rate reported Friday covers not only civilians but also members of the armed forces living in the United States, and it compares to rates of 5.5% in August, 5.4% in July and 5.2% in June, the 14-year low. Another measure, covering civilians only, recorded unemployment of 5.4% in September, 5.6% in August, 5.4% in July and 5.3% in June, also a 14-year low.
During the month, unemployment among civilian Latinos fell a full percentage point to 7.4%, while civilian black unemployment declined 0.5 point to 10.8%. Unemployment among both groups, though still well above the national average, has been dropping for the last year, from 12.3% for blacks in September, 1987, and from 8.2% for Latinos a year ago.
Wyss speculated that in the current tight market, more employers, rather than bid up wages to attract skilled workers, are reaching out to hire and train blacks, Latinos and other minorities in the unskilled work force.