Jobless Rate Falls to Lowest Level in 16 Years in March but Fewer Jobs Are Created
Unemployment fell to 4.9% in March, the lowest level in nearly 16 years, but the number of new jobs declined as the U.S. economy showed signs of slowing, the Labor Department said Friday.
Economists, many of whom believe that the economy has reached a critical juncture, said last month’s employment figures sent a mixed message.
The low jobless rate, down from 5.1% in February and 5.4% in January, signaled that the economy is still strong and that an increasingly tight labor market could fuel inflation. But the number of payroll jobs created in March fell to 180,000, well below the 12-month average of 300,000, suggesting that an economic slowdown lies ahead.
Fear Wage Inflation
The March unemployment rate was the lowest since December, 1973, just before the Arab oil embargo helped shove the U.S. economy into a steep recession.
To some analysts, the unusually low jobless rate is a harbinger of an approaching wage-price spiral. As employers boost wages to attract scarce workers, they increase the prices of their products to cover higher payroll costs. Rising prices cause workers to push for still higher pay, further fueling the inflationary cycle.
“What we are seeing is a hint, and a possible emergence, of a stagflation trend,” said Allen Sinai, chief economist at Boston Co. Economic Advisors, referring to the twin diseases of endemic inflation and stagnant growth that wracked the economy during the 1970s.
Sinai noted that the labor pool seems to be shrinking, with nearly 200,000 fewer job-seekers in the economy than two months ago, even as employers are hanging out “help wanted” signs and bidding up entry wages to a point well above the statutory minimum wage.
Bureau of Labor Statistics Director Janet L. Norwwod noted in a statement to Congress that the portion of the civilian population with jobs hit 63% in March, the highest ratio ever recorded.
“We’re getting down to the bottom of the barrel of the available pool of labor, and that puts pressure on wages,” Sinai said. “At the same time, there was a clear softening in the production side of the economy, with no growth at all in factory jobs for the second month and another decline in construction jobs. What we see are the crosscurrents of inflation rising and the economy slowing; that is, stagflation.”
Other analysts were more optimistic, but only because they attached less importance to the low level of unemployment than to the slowing rate of job creation. Reinforcing that view, the average manufacturing work week declined to 40.9 hours in March, well below the 41.1-hour average of the last year.
The March figures suggest the kind of moderate slowdown the economy needs to hold down inflation without spooking the Federal Reserve Board into raising interest rates and risking a recession, said Irwin L. Kellner, chief economist at Manufacturers Hanover in New York.
“This was a sign of softness, and this report is a good example of why most economists pay more attention to the payroll jobs than to the unemployment rate,” Kellner said.
Mild Market Reaction
Kellner noted that many of the 75,000 new jobs reported by retailers were probably temporary, caused by the early Easter holiday. In fact, chain store sales for the month were unexpectedly low, he said, considering that the period included a holiday for which retailers usually have high hopes.
Financial markets appeared to greet the employment data with mild enthusiasm. The Dow Jones industrial index wound up a seesaw day at 2,304.80, a gain of 12.83 points. The dollar rose slightly, gold declined, and interest rates ticked up.
The March figures were characterized as “a mixed bag” by Cynthia Latta, an analyst at the Data Resources research firm in Lexington, Mass.
“The weak rise in payroll employment is consistent with other indications that growth may be slowing,” Latta said. “But the drop in unemployment says that the economy is still strong, but that labor markets are tightening and wage pressures will increase.”
Latta said the signs of moderation are not sufficient to cause the Fed to let interest rates subside, but it is not clear if the apparent inflationary pressures will lead to additional tightening. The Fed already has pushed up interest rates more than 3 percentage points in the past year to slow the economy and dampen rising inflation.
“We’ll probably have to wait until the next price inflation report--next Friday--and then they’ll probably snug up one more time,” Latta said.
Faster Pay Rise
Hourly wages in the non-farm private sector economy rose 0.4% in March after rising only 0.1% the previous month. Over the past year, those wages have risen 4.1%, compared to just a 3% increase during the previous 12 months.
Last month’s wage increase rate would be 5.2% on an annualized basis, another indication that wage-based inflation is rising.
Using another measure of unemployment that excludes members of the armed forces who reside in the United States, March unemployment fell from 5.1% in February to 5% in March, also the lowest level since December, 1973.
In California, civilian unemployment recorded by the Census Bureau declined half a percentage point to 4.5% in March. Seven of the 11 largest states had civilian unemployment rates of less than 5%, with the West Coast, Southeast and Northeast among the tighter labor markets.
New Jersey and North Carolina registered unemployment rates of only 3%; Massachusetts had 3.4%; and Pennsylvania, fast shedding the Rust Belt stigma, had 3.9%. Other low-unemployment states were New York, 4.3%, and Florida, 4.8%.
But Michigan, which continues to suffer from problems afflicting heavy industry, had 6.6% unemployment in March, and Texas, still singing the Oil Patch blues, had 6%.
