Unemployment Falls to 5.1%--a 15-Year Low
The nation’s unemployment fell to a 15-year low of 5.1% in February and the economy generated 289,000 new payroll jobs, the Labor Department said Friday in a report that sent more signals of mounting inflation and an economy that is near overheating.
Unemployment tumbled from 5.4% in January as many teen-agers and college students left the labor force and returned to school. Meanwhile, the influx of new jobs, though less than the booming 415,000 created in January, was still greater than most analysts expected.
“The picture remains a strongly growing economy,” said Daniel T. Van Dyke, vice president and senior economist at Bank of America in San Francisco. It suggests that the Federal Reserve “will continue on the course they have been on for the past year,” pushing up interest rates in an attempt to curb inflation, he said.
In California, civilian unemployment in February was 5%, unchanged from the previous month.
‘Not as Strong as It Looks’
Meanwhile, on Wall Street, the Dow Jones average of 30 industrial stocks fell 9.29 points to close at 2,282.14. The impact was not greater, analysts said, in part because much of the unemployment drop was attributed to students. Unemployment among workers under 24 plummeted by 1.4 percentage points, while rates for all other age groups were virtually unchanged.
“It’s hard to argue with the lowest unemployment in 15 years, but this is not as strong as it looks,” said David Wyss of Data Resources Inc. in Lexington, Mass. “The drop in the labor force did it and that was heavily concentrated among teen-agers, who tend to bounce in and out of the labor market. A lot came in during Christmas vacation and stayed in early January, when the January survey was taken. This survey came later than usual in February, and by then most of them were back in school.”
Had the drop come in a more stable part of the labor force, economists would have been more concerned because it would have suggested a more serious tightening of the labor pool, pushing up wages and inflation.
“It won’t save us from more Fed tightening but this report isn’t nearly so strong as it looks on the surface,” said Bruce Steinberg of the Merrill Lynch brokerage firm in New York.
The 289,000 new payroll jobs were overwhelmingly in service industries. Factory jobs, which had increased by 245,000 from September to January, declined by 8,000.
The volume of new jobs was substantially above the average monthly level of about 240,000 over the last four years, when the economy expanded at an average annual rate of just over 3.3%.
Federal Reserve Board Chairman Alan Greenspan, sounding the alarm against accelerating inflation, has warned that the economy cannot sustain growth much above 2.5% without overheating. Job creation so far this year has averaged more than 350,000 a month, a pace that could put it near the danger zone.
Youths’ Rate Important
“The economy is growing and the labor market is tight, so this certainly won’t stave off the Fed,” said Steinberg.
Janet L. Norwood, director of the Bureau of Labor Statistics, stressed the effect of the young workers’ decline in her monthly statement to Congress’ Joint Economic Committee.
Unemployment “was most evident among groups whose jobless rates tend to behave somewhat erratically” and whose month-to-month moves may not mean much, she said.
In addition to teen-agers and workers aged 20 to 24 moving out of the labor force in large numbers, Norwood noted a steep decline of 1.6 points in unemployment among Latinos, whose jobless rate now is at 6.8%.
Recipe for Higher Labor Costs
Latinos, she noted, “comprise only 7.5% of the nation’s work force (but) accounted for nearly 40% of February’s improvement in unemployment.” Unemployment among other groups specified by the Census Bureau was virtually unchanged: adult men and women at 4.5%, whites at 4.3%, blacks at 11.9%.
Other indicators of jobs activity, also volatile from month to month, showed marginal weakness. The average factory workweek was unchanged at a comparatively high 41 hours, and overtime remained at 3.9 hours a week. Average hourly pay increased 0.1%, after a more worrisome 0.5% increase in January.
Economists believe in general, however, that an unemployment rate near 5%, together with monthly payroll job creation at or above 250,000, is a sure recipe for higher employment costs, which increased markedly in the last three months of 1988.
A separate measure of unemployment that excludes members of the armed forces resident in the United States also registered 5.1% in February, also the lowest such measure since May, 1974.
