Jobless Rate Falls to 6.4%, Igniting Fears of Inflation
The national unemployment rate dipped to 6.4% in April as the robust economy created a larger-than-expected 267,000 new jobs, the Labor Department reported Friday, but the good economic news rattled jittery stock and bond markets, which fell amid fears that inflation may accelerate.
California unemployment rose to 9.6%, up from 8.6%, and analysts were disappointed with the figure. But they also saw signs that the state’s economy is improving slightly. Many of the additional unemployed Californians were job seekers who re-entered the market after being discouraged for so long that they had stopped actively looking for work. They had not been counted in recent unemployment statistics.
In Orange County the unemployment rate stayed flat at 6.7% in March, the most recent month for which figures are available. Because the monthly jobless statistics for the individual counties are computed after the state and national rates, the April figures for Orange County won’t be released until later this month.
In California, “people are being drawn back into the labor force” but the economy is not yet creating enough jobs to fill their expectations for returning to work, said Thomas Plewes, associate commissioner of labor statistics.
The state gained a meager 4,500 jobs in April and total employment still remains more than half a million below its 1990 peak. “It sure isn’t much of a recovery,” said Larry Kimbell, director of the UCLA Business Forecasting Project.
At a White House news conference, a jubilant Labor Secretary Robert B. Reich said that the national jobs report, with unemployment falling from 6.5% in March, “gives us a lot to crow about.” But stock and bond investors were not impressed:
* The Dow Jones industrial average of blue chip shares fell 26.47 points to close at 3669.50, after plunging more than 53 points earlier in the day.
* Falling bond prices led to higher interest yields, with the key 30-year Treasury bond soaring to 7.55%, up from 7.33%, and reaching the highest level since December, 1992.
* The Federal Reserve Board, which has hiked rates three times since February, will be under pressure when its policy-making committee meets May 17, to drive up the cost of money yet again to calm the markets. Higher interest rates would slow the pace of economic activity, presumably preventing the kind of rapid rise in prices that investors fear.
There are no immediate visible signs of inflation: consumer prices rose just 2.5% in the year ending in March. However, the financial markets are fearful that a falling jobless rate could lead to labor shortages, upward pressure on wages and a resurgence of inflation.
The Clinton Administration is sticking to its forecast of steady economic growth without any overheating of prices.
“I think it’s impossible to outguess the markets and I’m not really going to try,” Laura D’Andrea Tyson, who chairs the President’s Council of Economic Advisers, told the White House news conference.
“I would say to those market participants who might have a concern about inflation . . . that this report is showing us, if you look over the past year, average hourly earnings have only increased about the same rate as inflation. . . . “ Tyson said. “So we really have a very good cost situation and a good competitive situation.”
The uncertainty for wary investors is whether shortages of workers will occur as unemployment falls and whether product prices will rise as output comes closer to capacity in various industries.
“While the April report may cause some indigestion on Wall Street as another indication of inflation, we believe that sufficient excess capacity still exists to hold the line on inflation over the next several months,” said Robert D. Barr, deputy chief economist of the U.S. Chamber of Commerce.
“Over the longer term we expect that the higher short-term interest rates engineered by the Federal Reserve will prevent a new outbreak of inflation,” he said. Further, it’s likely that the Fed will continue to ratchet up interest rates “at least a couple of more times.”
The gain of 267,000 jobs would have been even larger but for the strike in the trucking industry, which idled 70,000 workers, Katherine G. Abraham, the government’s commissioner of labor statistics, told a hearing of Congress’ Joint Economic Committee.
Construction, health services and retail trade all showed increased employment for the month, she said. “Growth in April was especially strong in eating and drinking places and in auto dealers and service stations.”
In manufacturing, employers are still hesitant to hire new workers, preferring to pay overtime to existing employees. Overtime hit 8.4 hours a week in the auto industry, and 10 hours at sawmills. The average workweek in manufacturing was 42 hours, the highest level since the end of World War II.
UCLA economist Kimbell and other experts had predicted that Southern California would get a boost from spending to rebuild earthquake-ravaged freeways, buildings and homes. Kimbell said, however, that the improvement in construction, where 1,300 jobs were added in the state during the month, does not seem to be spreading to other industries.
“It may be giving us less stimulus than we counted on,” he said. Los Angeles County’s jobless rate, always volatile because of the small sampling on which it is based, leaped to 9.9% in April, from 9.4% in March. Yet the county figures--which, unlike the federal and state statistics, are not adjusted for seasonal trends--also offered a small bit of encouragement: The number of people with jobs inched up by 9,000 to 3,981,000 during the month.
Labor Secretary Reich said that California “is trailing the rest of the country by about a year” in moving from recovery to expansion. “Northern California is about on par with the rest of the country. Southern California is way behind,” he said.
“The big hits in California continue to be in the defense areas,” said Joseph A. Wahed, chief economist with Wells Fargo Bank in San Francisco. Still, he added, the job losses are growing smaller in those industries and “they aren’t dragging us down the way they were two or three years ago.”
Wahed said that the losses in defense and related industries finally have grown smaller than the gains in such areas as construction, retailing and services. The bottom line, he said, is that “there will be slow improvement in the economy.”
California continued to post the highest unemployment among the 11 big states whose unemployment rates are reported along with the U.S. figures every month. The next-highest jobless rates were reported for New York, at 8.2%, and Florida, at 7.4%.
The lowest unemployment was in North Carolina, at 3.9%, followed by Illinois, 5.5%, and Michigan, 5.7%.
“The mix of unemployment has changed markedly” this year, BLS commissioner Abraham said. For example, the number of job losers in California--people who were laid off or dismissed--was 688,000 last month, down significantly from 781,000 in March. The number of re-entrants--people encouraged enough to go back into the market--was 494,000, up from 417,000 a month before.
State Treasurer Kathleen Brown used the new figures to attack Gov. Pete Wilson, issuing a statement which said that “there’s a 49-state recovery party going on and California wasn’t invited.”
Dan Schnur, spokesman for Wilson’s reelection campaign, said that Brown’s attack was the work of a desperate campaign.
“The old Kathleen Brown understood that California’s economic difficulties have been caused by national and international forces beyond the control of any individual,” he said. “Before Kathleen Brown gets too happy about the idea of Californians being thrown out of work, someone ought to explain to her that the reason the percentages changed is because more people than ever before have entered the work force.”
Rosenblatt reported from Washington and Silverstein from Los Angeles. Times staff writers Amy Wallace in Los Angeles and John O’Dell in Costa Mesa contributed to this story.
Jobless Rates
Here are U.S. and California unemployment rates, in percentages, over the last year:
U.S. Calif. April 6.4 9.6 March 6.5 8.6 Feb. 6.5 9.0 Jan. 6.7% 10.1 Dec. 6.4 8.7 Nov. 6.5 8.6 Oct. 6.8 9.8 Sept. 6.7 9.4 August 6.7 9.0 July 6.8 9.8 June 7.0 9.1 May 6.9 8.7
