Jobless Rate Unchanged at 5.2%, but Weakness Is Seen in Manufacturing : Economy: Strong payroll expansion in the service sector may keep the Federal Reserve from lowering interest rates.
The U.S. economy created 233,000 new jobs in October and unemployment remained unchanged at 5.2%, the Labor Department said Friday, but the better-than-expected job growth was undermined by a continuing decline in factory employment.
The jobs report, the first significant economic data for the final quarter of 1989, indicated that the nation’s manufacturing base is weakening. But the surprising strength of the service sector made most analysts doubt that the Federal Reserve Board would soon move to reduce interest rates.
Last month’s new employment compares to the creation of 201,000 jobs in September, revised downward from an earlier report of 210,000. Still, October’s growth was considerably slower than the pace set earlier in the year.
The government said factory employment fell by 13,000 in October, the seventh consecutive monthly decline in manufacturing. The automobile industry was particularly hard hit, with 14,000 layoffs and lost jobs.
Since March, the nation’s manufacturing employment has fallen by 155,000, and some observers are concerned that the factory slump could push the nation into a recession if it spills over into the services sector.
Virtually all of October’s payroll job growth was in services. Nearly half came from 94,000 new government hires, many of them teachers at the start of a new school year.
In California, unemployment fell sharply from 5.1% to 4.8% during October, the department reported. The state-by-state unemployment estimates are based on much smaller survey samples and are often volatile.
Economists said October’s report confirmed fears of a weakening economy but they noted that the news was not quite bad enough to give the Federal Reserve a strong reason to ease up on interest rates when its policy-making board meets next week.
“The overall employment number is up and the politically sensitive unemployment statistic is unchanged, but the manufacturing sector is weakening rapidly,” said Irwin L. Kellner, chief economist at Manufacturers Hanover in New York.
Lynn Reaser, an economist with First Interstate Bancorp in Los Angeles, said the dichotomy between manufacturing and services reflects a continuing pattern.
“Manufacturing is suffering, especially autos, computers, capital goods, export goods,” Reaser said. “But at the same time, the service part is in expansion, with higher government and medical employment and higher medical wages and costs. With this kind of number in this kind of economy, I think the Fed will probably not take any step.”
Further underscoring the lopsided nature of the economy, the Labor Department reported a 0.3-hour decline in the average manufacturing work week--to 40.8 hours--while overall hours worked increased 0.1 to 34.8 hours.
At the same time, the overall hourly wage increased a larger-than-expected 0.7%, or 7 cents, to an average of $9.81, the largest increase in several months, while manufacturing hourly wages inched up only 0.2%.
The current economic picture in some regards resembles the 1985-86 period, when the dollar was high in relation to foreign currencies, export industries were suffering and new jobs were growing only in service industries.
“This is looking a lot like the early recovery period, when all gains were in the service sector while manufacturing was weak,” said David Wyss of Data Resources, Inc., in Lexington, Mass. “Part of that may be a replay of the dollar problem, which is now up about 20% from where it was at the start of 1988.”
Wyss said the current picture provides “another perfectly good excuse for the Fed to do nothing. There’s no need to tighten but there’s enough total strength that there’s also no need to loosen.”
The department’s job growth statistics are derived from a survey of more than 300,000 businesses, while the unemployment percentages are calculated from a Census Bureau survey of some 56,000 households.
The household survey projected only 96,000 new jobs in October, with 72,000 new job seekers and a 23,000 drop in total unemployment to 6,561,000. The numbers add up to an overall unemployment rate of 5.2%, or, if only civilians are counted, 5.3%.
Labor Statistics Commissioner Janet L. Norwood noted the widening divergence between the two calculations so far this year. The business poll has counted 2.8 million new jobs, while the household survey has showed a gain of only 1.9 million.
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