408,000 New Jobs, Increase in Hourly Wages Reported

The nation’s economy continued to generate new employment at near-boom levels in January, creating 408,000 new jobs, despite an unusually large number of job-seekers, the Labor Department reported Friday.

Director Janet L. Norwood of the Bureau of Labor Statistics and private sector economists partly discounted the 0.1 percentage point increase in unemployment--to 5.4%--as mostly attributable to unpredictable post-Christmas labor market fluctuations. They instead focused on the strong report of job creation in manufacturing and services.

The 408,000 new jobs reported by business establishments was well above last year’s monthly average of slightly more than 300,000 new jobs and above market expectations of new January payroll employment of about 250,000. December’s job creation was put at 221,000, a downward revision from the 279,000 reported a month ago.

Of more concern in the employment report was the fact that average hourly wages increased a relatively steep 0.6% in January after two months of virtually no increases--a statistic likely to revive fears that a new cycle of wage-driven inflation may be on the horizon.

“The big picture,” said Allen Sinai, chief economist at Boston Co., “is of a very strong economy, of increasing employment beginning to tighten the labor market and beginning upward pressure on wages.” The almost certain consequence, he predicted, is that the Federal Reserve Board is virtually certain to nudge interest rates another notch or two higher.

At least 100,000 of the new January jobs came from higher than expected employment in construction, thanks to mild January weather, and from fewer than usual post-holiday layoffs by retailers.

These special factors may have eased market concerns that the economy is starting the year too explosively. In fact, the reaction in financial markets Friday was subdued, with the Dow Jones industrial average declining a modest 2.50 points.

Seasonal variation also was responsible for the Labor Department estimate that the labor force expanded enormously during the month. Before adjustment, raw Census Bureau numbers suggested a slight decline in the labor force, just as the raw numbers suggested a slight decline in employment. After adjustment, it was decided that 865,000 new job-seekers poured into the labor market and that 702,000 more Americans were employed--the first time in many months that the Census survey of new jobs has actually exceeded the payroll count, normally considered the more reliable estimate.

The result was a marginal increase in total unemployment from 5.3% to 5.4%, even though all other signs pointed to powerful employment growth.

Sinai dismissed the 0.1 percentage point increase as insignificant. “What is unmistakable,” he said, “is the tremendous demand for jobs and the tremendous availability of jobs. Once again, even with (former President Ronald) Reagan gone, the incredible job-creating machine created an incredible number of jobs.”

He expressed concern, however, at the renewed evidence in January of upward pressure on wages, as the average manufacturing workweek increased by 0.1 hour to 41 hours, an unusually high number.

Giulio Martini of Sanford Bernstein & Co. in New York noted that an artificial bulge of perhaps 65,000 extra warm-weather jobs in construction and perhaps a like number of jobs added to retail employment by seasonal adjustment were offset by lower-than-normal new employment in services and an unexpected decline in government jobs. The verdict: “a very strong report, with all signs pointing to higher wage inflation.” The consequence: “We assume the Fed will act again” on interest rates.

Different View

Robert F. Wescott of Alphametrics, a Philadelphia forecasting firm, made a similar judgment but drew slightly different conclusions. “The year is starting off with economic growth and employment growth stronger than expected,” he said. “Inflation seems to be under control, but we need a constant monitor of that hourly earnings number.”

Wescott suggested that Fed Chairman Alan Greenspan, for all his public dourness about economic growth in excess of about 2.5% a year and public concern that inflation is accelerating, “deep down inside is tickled pink over the performance of this economy.”

Civilian unemployment in California increased to 5% in January from 4.7% at year’s end, as the labor force increased by 22,000 while employment declined by 19,000. In January a year ago unemployment was 5.2%.