U.S. Jobless Rate Edges Up to 5.2% During Month : Financial Markets Rally on Sign Nation’s Economy Is Headed for ‘Soft Landing’
The overall unemployment rate edged upward to 5.2% in June from May’s 5.1%, while a gradually slowing economy generated 180,000 new payroll jobs, somewhat fewer than expected, the Labor Department said Friday.
In California, the civilian unemployment rate increased by 0.1 percentage point to 5.6%.
Nationwide, the recession-sensitive goods-producing sector of the economy lost 51,000 jobs in May, 31,000 of them from factory payrolls.
The discouraging news about job creation was offset in part by a steep upward revision in May’s new jobs to 207,000 from an anemic 101,000 first estimated a month ago. Nevertheless, the number of jobs grew at an average monthly rate of less than 200,000 for the two months, down from about 300,000 a month for 1988.
But there were indications that the economy is declining on a controlled glide path rather spinning out of control. Hourly wages rose only negligibly in June for the second consecutive month after steady increases earlier this year seemed to herald the start of a classic wage-price spiral brought on by a tightening labor market.
Financial markets rallied, apparently in the belief that the Federal Reserve Board is now more worried about recession than inflation and that it now will gradually loosen the monetary tourniquet. The Dow Jones industrial index rose 25.42 points, and bond prices also rose.
No Signs of Recession
“The soft landing remains right on track,” said Kathleen Cooper, chief economist at Security Pacific National Bank in Los Angeles.
“We’re in a weaker economy, but there is no suggestion we’re slithering close to a recession,” added David Levine of Sanford Bernstein & Co., an investment banking firm in New York.
“In a typical recession, you get minus 300,000 jobs” a month in goods-producing industries for several months at a time, Levine said. “So we’re only one-sixth of the way there.”
David Wyss of Data Resources Inc., a consulting firm in Lexington, Mass., called the latest jobs report “unremarkable.”
“Manufacturing continues weak, reflecting weak consumption in autos in particular,” he said. “Factory hours declined slightly to 40.9 hours a week, the shortest since September, 1987, and 50,000 factory jobs have been lost over the past three months. Of the 31,000 factory jobs lost in June, 15,000 were in motor vehicles and parts.”
But Wyss was encouraged by the hefty upward revision in May job creation, and by the increase of only 1 cent an hour in labor costs.
“That amounts to two consecutive months with almost no wage cost increase after a larger jump (7 cents) in April,” he said. “That should make the Fed happy: They can loosen without much fear of wage inflation.”
Donald Straszheim of the Merrill Lynch brokerage house in New York said the worst case for the economy is a wage-price spiral in which workers negotiate higher wages based on higher prices, and the higher wages in turn force higher prices on the goods the workers produce.
“The decline in manufacturing employment is not worrisome,” Straszheim said. “It’s a small price to pay for a slower economy with less inflation, because a return to a wage-price spiral would be the worst of all worlds.”
The small increase in the June unemployment rate was caused primarily by a big jump of 485,000 in the number of Americans in the job market last month, after a decline of 60,000 in May. The rate in June was 5.2% if the armed services are counted, 5.3% if only civilians are counted.
Teen-age joblessness rose from 15.2% to 15.6% in June. For black female teen-agers, the unemployment rate shot up from 28.4% in May to 40.2% last month.
The number of Americans participating in the job market rose to 66.9%, an all-time high, while the equivalent participation rate for civilians rose by a like amount to 66.6%, also a record.
