Jobless Hike Confirms Economy Is Cooling Off : Financial Markets View April Increase to 5.2% as a Sign Fed Will Not Push Up Interest Rates
The nation’s unemployment rate bolted to 5.2% in April--up from 4.9% in March--the government reported Friday, providing dramatic confirmation that the economy is slowing visibly. But analysts said it still is too early to tell whether a recession is in the offing.
The jump marked the second time this year that the monthly jobless rate has risen. The number of new jobs that the economy created also slowed markedly, edging up a scant 117,000 over the month--about half the growth that economists had expected.
The nation’s financial markets, which had feared that the economy’s earlier overheating might prompt the Federal Reserve Board to push interest rates up further, welcomed the news as a sure sign that the central bank would not tighten any further.
The Dow Jones average of 30 industrials soared more than 20 points immediately after the figures were announced--although profit-taking eventually sent the index plunging. The Dow closed at 2,381.96, or 2.94 points below its level on Thursday.
The dollar fell sharply but later recovered. Traders said that if the Fed seemed likely to raise interest rates, the U.S. currency would have climbed still higher.
The White House sought to play down the April rise. Press Secretary Marlin Fitzwater said the economy “continues to grow with low inflation. It’s a very positive economic outlook.”
But economists were divided on whether the slowing would lead to a recession. Jerry Jordan, economist for First Interstate Bancorp in Los Angeles, said the economy now “has downshifted substantially. Everybody’s in the process of revising their numbers down.”
Roger Brinner, economist with Data Resources Inc. of Lexington, Mass., cautioned that the economy still has a lot of momentum from earlier months and may end up slowing only enough to lessen inflation pressures. “This is not a sign of a recession in progress,” he said.
Labor Department analysts noted one reason that the unemployment rate jumped so sharply was that the economy was beset by a larger-than-usual number of new job-seekers--395,000 in all--some of whom may have been fearful that opportunities would fade if the economy continued to slow.
At the same time, manufacturing firms--themselves uncertain about the outlook--merely scheduled more overtime rather than hiring more workers immediately. The length of the average workweek rose by 0.4 hours.
Janet L. Norwood, commissioner of the Bureau of Labor Statistics, pointed out that in conditions such as today’s, the jobless rate can be erratic. “We have had two other occasions during this long expansion” when the jobless rate rose and then declined again, she said.
The number of new payroll jobs created in April was the smallest since mid-1986--and about a third of the average that has prevailed over the last several months. The jobless rate in March--4.9%, down from 5.1% in February--had been the lowest in almost 16 years.
In a sign that inflation pressures are returning, the report showed that average hourly earnings of factory workers rose 0.7% in April after climbing by 0.3% for the two previous months. Such increases for workers may later push up the prices for the goods being produced. Still, Norwood insisted that wage patterns often occur “in fits and starts.”
Analysts suggested that at least some of the changes in the April report may have been exacerbated by statistical problems. The Easter holiday fell in March this year instead of April, distorting the department’s procedures for adjusting the figures for seasonal patterns.
As a result, some analysts believe the job data may prove more buoyant in May and early summer. David D. Hale, economist for Kemper Financial Services of Chicago, said Friday he thought the markets had “overreacted” to Friday’s news. “It’s still a gray area,” he said.
Few Industries Expand
Still, Norwood conceded that the April slowdown “is real. While we are not getting net job losses, we are creating far fewer jobs than we were even a few months ago,” she said. “And few industries are significantly expanding their employment.”
As has been the case in recent months, the bulk of the increase in new jobs came in the service industries, such as medical care and wholesaling. Employment in construction and in manufacturing remained flat. Job levels in electrical equipment and lumber actually declined.
The bulk of the increase in joblessness came among adult men, whose unemployment rate jumped four-tenths of a percentage point to 4.6%. The rate for Latinos jumped to 8.3% over the month, wiping out a similar-sized decline in March. Rates for other groups were unchanged.
At Late-1988 Level
The April rise brought the total number of workers out of jobs to 6.55 million, up from 6.13 million in March. The level is about the same that prevailed during most of the final three months of 1988.
In an assessment that appeared to reflect the views of most economists, Jordan said that the increase in joblessness “removed any lingering chance” that the Fed would decide to push interest rates up further when it meets later this month to map out its future strategy.
Instead, Jordan sees interest rates declining later in 1989--possibly by as much as 2 to 3 percentage points by the year-end.
The 5.2% figure for the April unemployment rate is compiled to include those members of the armed forces who live in the United States. An alternative measure that does not count servicemen and women in the total showed the rate at 5.3%, compared to 5.0% in March.
