Jobless Rate of 5.2% Spurs Inflation Fear

In a report that casts doubt on recent signs of an economic slowdown, the Labor Department announced Friday that unemployment declined in October by 0.1 of a percentage point to 5.2%, matching a 14-year low.

It said that 330,000 new jobs were created, many in manufacturing industries.

The October employment data, the last major economic report before Tuesday’s election, jolted those economic analysts who fear that the economy is in danger of overheating.

But it was seen as a boon to GOP presidential nominee George Bush, whose campaign expects voters to take the news of more jobs and lower unemployment at face value.

“The future is bright, and it’s getting brighter,” President Reagan said of the employment report as he was leaving the White House to make a campaign speech for Vice President Bush. “Nothing’s going to stop us now.”

“There goes the incredible job-creating machine again,” said one analyst, Allen Sinai of the Boston Co., of the nation’s economy. “For the economy, this is terrific news . . . . But, for the financial markets, it’s too strong, and the danger of higher wage inflation seems real.”

Of the new jobs created, 99,000 were in manufacturing, the largest such monthly increase in four years and a complete reversal of declines in factory jobs during the summer.

Market analysts who had focused on the relatively sluggish 2.2% annual growth rate in the third quarter of the year had expected unemployment to remain at 5.3% and new payroll jobs to be below average.

But, instead, new jobs surged well above the 300,000 level for the month, and the new-job count for September was revised to 304,000 from 250,000.

With an already tight job market apparently getting tighter, analysts said the economy, expanding for almost seven years now, may be growing too fast and that the Federal Reserve will have to raise interest rates to curb inflation.

After the report’s release, short-term interest rates moved higher and stocks, after a see-saw day, wound up with a 24.54-point decline in the Dow Jones Industrial Average.

Upward Trend in Wages

Sinai warned that the upward trend in hourly wages--rising at an annual rate of 5.2% over the last three months, compared to 2.6% during 1987, could prompt the Fed to act before year’s end. “There’s no doubt in my mind we have ratcheted up significantly on inflation.”

Steven Hess, senior economist at First Interstate Bancorp in Los Angeles, said that the earlier signs of a slowdown had been taken too seriously.

“Now we are looking to strong growth in the fourth quarter and see the labor market tightening, manufacturing nearing full capacity and the Fed without any leeway to loosen,” he said.

One positive side of the equation is that the strong rebound in manufacturing jobs points to a continued strong flow of export orders. “We expect continued improvement in the trade deficit,” Hess said.

Analyst Robert F. Wescott of the Alphametrics forecasting firm in Philadelphia, called the bounce-back in manufacturing jobs “very encouraging.”

“These manufacturing jobs reflect demand on the export side, and I think we’ll continue to see strong export growth over the next year or two.”

Wescott said he saw no reason why the expansion, already the longest peacetime growth period on record, “couldn’t go on for a few more years.”

The 5.2% unemployment rate for October covers both civilians and members of the armed forces living in the United States. Another measure, which includes only civilians, also dropped by 0.1 of a percentage point in October to 5.3%. Those unemployment figures match the June rate, which was the lowest since May, 1974.

Civilian unemployment in California was reported at 5% in October, down from 5.2% in September and down substantially from 5.8% a year ago. Nationwide, civilian unemployment in October, 1987, was 6%.

Among various population groups, unemployment has fallen steadily across the board over the last two years, although unemployment continues markedly higher for minority members and teen-agers.

In October, unemployment among subgroups was: adult men, 4.6%, up from 4.5% in September; adult women, 4.7%, down from 4.8%; whites, 4.6%, down from 4.8%; blacks, 11%, up from 10.8%; Latinos, 7.7%, up from 7.4%; teen-agers, 14.9%, down from 15.7%; and black teen-agers, 26.5%, down from 32.2%.