110,000 New Jobs Created, Unemployment Dips 0.1%

The nation’s economy posted another sign of continuing vitality Friday as the government reported that 110,000 jobs were created in August, despite widespread telephone strikes, while unemployment edged downward to 5.1%.

The August figures were greeted warmly by economists, who said they provide fresh evidence that the economy is maintaining a moderate rate of growth rather than sliding into recession or accelerating into inflation.

At the same time, the surprising resilience of the economy, which appears likely to enter an unprecedented eighth year of peacetime growth in November, makes it unlikely that the Federal Reserve Board will cause interest rates to fall any further.

August’s job growth follows an adjusted increase of 184,000 jobs in July, the Labor Department reported. If strikes had not occurred at several regional Bell telephone companies, new employment would have been 218,000 last month, the government said.

Unemployment, which has hovered near 5% all year, ticked downward to 5.1% in August from 5.2% in July. A separate unemployment measure excluding members of the armed forces living in the United States remained unchanged at 5.2%.

Economists Pleased

In California, civilian unemployment fell steeply to 4.5% last month from 5.3%. State employment estimates are considered far more volatile than the nationwide surveys conducted by the Census Bureau every month.

Economists were generally upbeat about the employment figures, noting that earlier expectations of a possible recession or economic softening later this year have all but evaporated.

Earlier this week, the government’s estimate of economic growth in the second quarter of 1989 was revised upward to an annual rate of 2.7% from a previous report of 1.7%.

“The economy looks very solid, with faster growth this quarter than last,” said Allen Sinai of the Boston Co. Economic Advisers. “This is not a signal for a boom, but instead a very firm footing for the economy.”

Welcome Signal

Sinai noted that the Labor Department report contained evidence that wage inflation is moderating: Average hourly wages dipped 1 cent in August, average weekly wages fell $2.29, and the average hours worked in the manufacturing sector declined 6 minutes a week.

He said the hourly wage decline is a welcome signal that wages appear to be growing at about 4.5% a year--a far slower rate than seemed likely last winter.

“It seems wage inflation has stabilized,” he said. “What we are looking to is a strong economy in the third quarter, and so far inflation is performing well. There is no imminent recession, hardly even a slowdown, so the Fed will probably hold steady.”

Sinai suggested that if the Federal Reserve had known earlier this summer what it knows now, “it wouldn’t have eased” interest rates as much as it did when recession fears were rampant.

Roger Brinner of Data Resources, a Lexington, Mass., economic forecasting firm, said August’s employment figures were less a signal of future activity than ratification of what was already known--that the economy was more robust last spring than had been feared.

“Jobs are not a leading indicator,” Brinner said. “If anything, they lag, because people hire only after seeing if customers will buy what they have to offer. What this means is that there was no recession in the second quarter.”

Brinner said he expects wage inflation to reach a level of about 4% or 4.5% a year and remain steady. “We see no spiral, but rather a balance--which we can sustain only with a moderate slowdown,” he said.

‘Numbers Are a Non-Event’

Gordon Richards, an economist with the National Assn. of Manufacturers, cited the August report as another sign that the economy is chugging ahead uneventfully at its own pace.

“The employment numbers are a non-event,” Richards said in a statement, noting that labor markets traditionally change little between July and August.

Because the August strikes reduced estimated new employment by 108,000 jobs, Richards said, “job gains in September should pick up, provided the disputes are resolved.”

Following the pattern of recent years, most job creation in August was in the services sector, where 69,000 new payroll jobs were created. In the goods-producing sector, 20,000 jobs were added as striking coal miners returned to work. A decision by auto makers to recall about 25,000 workers previously laid off during spring and early-summer doldrums helped increase new factory employment by 11,000 jobs.