Economic Surge Adds 348,000 Jobs to U.S. Work Force
A surging U.S. economy put 348,000 more people to work last month, the Labor Department reported Friday, but the good news sent waves of apprehension through financial markets ever fearful that tighter supplies of labor could cause a resurgence of inflation.
The burst of new jobs was twice as large as generally had been expected. Employment gains came across the broad spectrum of American business, with expanded hiring by department stores, manufacturing plants, insurance and real estate offices and engineering firms, as well as through temporary help agencies.
Despite the surge in new jobs, the nation’s unemployment rate climbed to 5.6% in May, up from 5.4% in April, as the seasonal closing of schools and colleges sent thousands of new job seekers into the labor market.
Experts agreed that the job creation figures demonstrate that the nation’s economic engine is purring smoothly. Total employment showed little change in the last three quarters of 1995. But since Jan. 1, the economy has created 1.5 million new jobs, Katherine Abraham, commissioner of Labor Statistics, told a news conference Friday.
“This is not a booming economy by any means but it is very solid,” said Barry Rogstad, president of the American Business Conference, an organization of high-growth firms.
But news of the job growth triggered concern among investors, with the stock prices going on a roller coaster ride.
The Dow Jones industrial average plunged more than 80 points, then recovered, amassing a final gain of 29.92 to close at 5,697.11. Despite the advance in the blue-chip industrial index, the overall tone of the market was pessimistic. There were 1,816 declining issues on the New York Stock Exchange, with only 671 stocks advancing, while 657 remained unchanged.
The yield on the Treasury’s 30-year bond, a key indicator of inflationary fears and expectations, rose sharply to 7.03%, up from 6.90% on Thursday.
“We are looking at an economy which is growing robustly,” said Lyle Gramley, chief economist for the Mortgage Bankers Assn. of America. But if the labor market continues to tighten, with the unemployment rate falling significantly, there will be strong inflationary pressures, he cautioned. If that happens, the Federal Reserve Board “should, and will,” act to head off inflation by raising interest rates, he said.
In a contradictory assessment, Gordon Richards, chief economist at the National Assn. of Manufacturers, blamed market reactions on “neurotic paranoia” among investors, stemming from unwarranted fears that inflation will flare up when the jobless rate drops below 6% for an extended length of time. Financial markets seem to “have a pathological fear of growth,” he said.
President Clinton welcomed the report on jobs, calling it “fresh evidence that the American economy is growing, steady and strong.”
“I believe it is a sign we can grow the economy without inflation if our workers and our businesses are productive,” Clinton said in remarks in the White House Rose Garden.
There were 126.5 million Americans working in May and 7.4 million unemployed. The jobless rate rose because the civilian labor force--those working or looking for work--expanded by 549,000, a big increase linked to the end of school and college terms.
Although signs of inflation are still minimal, the financial markets are edgy and anticipate labor shortages that could lead to higher prices.
Clinton, like his predecessors, wants the Federal Reserve to avoid stepping on the interest rate brakes during an election year.
Asked if the Fed should act to raise rates at its July meeting, the president said: “If they see that we are producing this level of job growth with no inflation, then I would think the interest rates should stay down.”
Economic experts are deeply divided on the advisability of any action by the Federal Reserve.
According to one school of thought, the economy is doing fine with negligible threat from inflation. Richards, for instance, said he believes the so-called “natural rate” of unemployment is not as high as the 6% figure favored by some economists but closer to 5.2%, a level that can be achieved without fear of prices heating up.
The other side of the argument, one evidently accepted by the stock and bond markets, is voiced by experts such as Gramley, a former Federal Reserve Board member. He noted that shortages of skilled labor are cropping up in many parts of the United States. In some regions of very high growth, such as the Midwest, even entry-level workers are in high demand, he said.
Lynn Reaser, chief economist at Barnett Banks, based in Jacksonville, Fla., said “labor markets are now fairly tight” and the nation is nearing full employment. “The scale is tipping toward a tightening because the Fed will clearly want to stay ahead of the inflationary curve,” she predicted.
The tightening labor markets have not been accompanied by any significant gains in wages.
Average hourly earnings rose 3 cents in May, compared with a gain of 4 cents in April.
“We think the addition of new jobs is a sign of solid economic movement and now we think America needs a raise,” said Denise Mitchell, spokeswoman for the AFL-CIO. “We need to see some wage growth for working people who have been squeezed too long.”
A broader look at the jobs picture shows the unemployment rate remaining in a relatively narrow range, 5.4% to 5.8%, since October 1994. Despite the apprehensions of Wall Street when joblessness remains below 6%, the cost of living--a crucial barometer of inflation--has been rising at approximately 3% annually.
The jobless rates for various groups included: men 4.8%, unchanged from April; women 5%, up from 4.7%; whites, 4.9%, up from 4.7%; blacks 10.2%, down from 10.5%; and Latinos, 9.2%, down from 9.7%.
There were 7.8 million people with more than one job, about 6% of all workers.
* MIXED MARKETS: Dow industrial average recovers but bond yields surge. D1
