Unemployment Up Despite 463,000 New Non-Farm Jobs

Unemployment rose slightly to 5.4% in November but the economy also created nearly a half-million new payroll jobs in services, manufacturing and construction, the government said today, leading to renewed fears of inflation.

While the jobless rate inched up 0.1 percentage point in November, the addition of 463,000 non-farm payroll jobs--roughly double the size of most predictions--shocked experts and suggested the economy could be growing too fast to keep inflation under control.

“It confirmed the worst fears that the economy is overheating and that the Federal Reserve will have to come down hard on the economic brakes,” Alfred Goldman, technical market analyst at A. G. Edwards & Co., said of the report.

“It’s a very strong number,” said Hugh Johnson, chief investment officer of First Albany Co. “It suggests the economy remains very strong.”

The Federal Reserve Board, which fights inflation by controlling the flow of money into the economy, could respond by forcing up interest rates in order to slow the economy to a more manageable growth rate, analysts said.

“I’d say the chances are better than 50-50 the Fed will raise the discount rate,” said Johnson. The discount rate is the central bank’s benchmark of credit conditions, and when it rises or falls, consumer interest rates follow.

‘Probability of Hike High’

“The probability of a discount rate hike is pretty high,” agreed economist Richard Peach of the Mortgage Bankers Assn.

However, one Labor Department expert said the growth in non-farm payroll jobs in November, which followed a revised increase of 238,000 jobs in October, “defies logic” and could be subject to revision when the next jobless report comes out in December.

“Anytime we get increases of that magnitude, we always take it with a grain of salt,” said John Bregger, assistant commissioner of the Bureau of Labor Statistics.

Financial markets reacted to the jobless report with a sell-off, with bond prices dropping sharply.

In California, the November unemployment rate rose to 5.3%, up from 5% in October.

Unemployment showed little or no significant change among the nation’s major demographic groups in November, when 6.6 million people were looking for jobs.

Adult Unemployment Up

Adult men and adult women joblessness was 4.8%, a slight rise from October, the department said. Unemployment among teen-agers fell 1 percentage point to 13.9%. The jobless rate was 4.6% for whites, 11.2% for blacks and 8.1% for Latinos.

The service-producing sector added 345,000 jobs last month. Service industries, especially health and business services, led the way with 195,000 of the jobs.

Factory employment rose sharply for the second straight month with 70,000 new jobs. In the past year, 425,000 factory jobs have been added to the economy.

Meanwhile, factory workers continued to average four hours of overtime a week last month, indicating that the manufacturing sector is continuing to boom and there is no slowdown in the rate of economic growth.

Following four months of sluggish activity, construction employment jumped 55,000 in November, the department said.

Meanwhile, average hourly earnings were unchanged at $9.45 in November after rising by a nickel in October, setting off fears of a wage-push inflation then.