U.S. Jobless Rate Hits Lowest Level in 7 Years
The nation’s economy generated 250,000 new jobs in August, driving the unemployment rate down sharply to 5.1%, its lowest level in seven years, the Labor Department reported Friday.
Financial markets, usually fearful that robust economic activity today will mean more inflation tomorrow, instead welcomed Friday’s news. The Dow Jones industrial average rose 52.90 to close at 5659.86. The yield on the 30-year Treasury bond finished the day at 7.10%, down from 7.15% on Thursday.
Michael Penzer, senior economist at Bank of America, said that the markets had been “paranoid” earlier in the week, with long-term interest rates climbing rapidly in anticipation of the unemployment report.
When the actual job increase was judged by investors as healthy but not extraordinary, the markets calmed down. “It was a classic case of ‘sell on the rumor, buy on the news,’ ” Penzer said.
Bert Ely, a financial consultant in Alexandria, Va., said: “There is a sense of maturity on the part of the markets; they have not overreacted.”
The August jobless rate for California and its counties will be released in two weeks. Orange County’s unemployment figure in July stood at 4.5%, slightly higher than in June but still well below the statewide rate of 7.1%.
The nation’s jobless rate, which had been 5.4% in July, was driven down in part by the return to college of young workers, which reduced the size of the labor force. That also served to reassure investors that tight job markets are not about to drive wages up sharply.
There was some encouraging news for workers, whose purchasing power has been lagging. Average hourly earnings climbed 6 cents in August to reach $11.87. That represents an increase of 3.6% from the $11.46 recorded a year ago.
The average weekly paycheck was $408.33 for the 80% of the work force (excluding supervisors and higher-paid professionals) covered by the government survey. That measure has also risen 3.6%, from $394.22 last August.
But Ron Blackwell, director of corporate affairs at the AFL-CIO, pointed out that the overall trend since 1982 has been stagnant or falling buying power for all but the 20% of families with the nation’s highest incomes.
“This is the first economic recovery in post-World War II history where real wages are still falling,” Blackwell said. “It’s no wonder why people feel insecure about their futures.”
Federal Reserve Board policy-makers are watching wage rates and the unemployment figures closely, fearful of any changes that might trigger inflation. Economists were divided on whether the Federal Reserve Board would push up interest rates at its policymaking meeting Sept. 24.
Ely predicted that the Fed would do nothing.
Dean Baker, an economist at the Economic Policy Institute, a liberal research organization, said that because the increase in jobs was “healthy but not explosive,” there is little pressure on the Fed to act. Besides, he said, the Fed traditionally hesitates to raise rates soon before a national election.
Others said that Fed Chairman Alan Greenspan might lead a move toward higher rates.
The drop in unemployment gives the Fed “further encouragement to do something,” said Barry Rogstad, president of the American Business Conference, an organization of high-growth firms. “This economy continues to be in very, very strong shape.”
Martin Regalia, chief economist of the U.S. Chamber of Commerce, took a neutral position, saying that any Fed action would be contingent on forthcoming reports on consumer and producer prices in August. “The Fed will wait and see what happens,” Regalia said.
President Clinton welcomed August’s 5.1% unemployment rate, the lowest since a 5% reading in March 1989. The economy “is on the right track, and we need to keep going in that direction,” he said at a campaign stop in Orlando, Fla.
Republican presidential nominee Bob Dole said that the “unemployment figures, while good, cannot cover up the basic facts. One needs to stop and ask: Why do American families need two incomes just to get by? Why do their paychecks get eaten up by taxes?” Dole’s key economic proposal is a 15% reduction in income tax rates.
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The job survey for August showed that there were 127.1 million Americans at work and 6.8 million unemployed. Another 1.4 million people were “marginally attached” to the labor force--they wanted to work but had stopped actively searching for jobs sometime in the past year.
The share of women older than 20 at work, 57.2%, was the highest since the government began keeping records in 1970.
Almost 6% of the labor force, 7.5 million people, had more than one job.
The unemployment rates for major population groups included: men 4.2%, down from 4.7%; women, 4.6%, down from 4.9%; whites, 4.4%, down from 4.7%; blacks, 10.5%, unchanged; Latinos, 8.7%, down from 9%.
The job survey showed “robust growth” in the finance, insurance and real estate sectors, Katherine Abraham, commissioner of labor statistics, told Congress’ Joint Economic Committee. And manufacturing employment, which had declined in July, rebounded in August.
Overall, the private sector added 173,000 jobs in August, below the average gains of 215,000 a month for the first seven months of the year. The other 77,000 jobs came from growing government payrolls, with local school systems adding personnel at the beginning of the academic year.
The biggest declines in unemployment came among young workers, 20 to 24, and the oldest group of workers, those over 55.
