Jobless Rate Edges Up; Stocks Soar

The nation’s unemployment rate inched up to 5.2% in September as the number of payroll jobs fell sharply, especially in the manufacturing sector, the Labor Department reported Friday.

The report shows that the economy, which expanded its output of goods and services at an annual rate of 4.7% in the second quarter of 1996, has cooled appreciably. That was good news for financial markets, which usually fear that a big boost in jobs will fuel inflation and make it more likely that the Federal Reserve Board will respond by pushing up interest rates.

Prices of stocks and bonds rose, and the Dow Jones industrial average moved up into record territory, all largely in response to the economic news.

The Labor Department reported that the unemployment rate moved up from the eight-year low of 5.1% posted in August. Payroll jobs fell by 40,000, the first decline since January, ending a string of several months of unusually vigorous growth in the job market.

“I wouldn’t think it is anything to worry about, considering the strong growth we have had that led up to this month,” said Robert Barr, deputy chief economist for the U.S. Chamber of Commerce.

A slowdown had been widely expected after recent reports of comparatively sluggish activity in retail sales and purchasing orders, he said.

On Wall Street, the Dow Jones industrial average showed a gain of 60.01, closing at 5,992.86. Two broader indicators of market sentiment set new records: the S&P; 500 climbed 8.68 to finish at 701.74, and the New York Stock Exchange composite index advanced 4.02 to 374.16.

The yield on the 30-year Treasury bond, a leading indicator of inflationary sentiment, fell to 6.73%, down from 6.83% on Thursday.

The Clinton administration sought to give the news a favorable political spin, explaining that the increase in the unemployment rate was better than it looked.

“There is something for everybody in today’s report,” said Labor Secretary Robert B. Reich. “Main Street ought to be delighted because the rate of unemployment continues to be remarkably low, and Wall Street should be delighted because the economy is not overheating.”

There was no immediate reaction from Republican presidential candidate Bob Dole, who is preparing for Sunday’s debate with President Clinton. Dole contends that the economy would grow faster, generating more and better jobs, under his plan for a 15% cut in federal income tax rates.

The biggest job losses last month came in the manufacturing sector. Employment fell 57,000, reflecting declines in payrolls for automobile companies, producers of industrial machinery and food processors.

Service employment, traditionally the biggest generator of jobs, grew by only 54,000, less than half the average monthly gains enjoyed for the first half of the year.

And construction industry growth was just 9,000 jobs, a weak showing “owing in part to losses in heavy construction in the wake of Hurricane Fran,” Katherine G. Abraham, the federal commissioner of labor statistics, said at a news conference.

With economists having grown accustomed to monthly gains in the 200,000 range, the net job decline in September was surprising. And the plunge in manufacturing “jolted people,” said Robert Dederick, economic consultant with Northern Trust Co. in Chicago.

The news will ease pressures on the Fed to hike interest rates, he suggested. The Fed “will take the message it did the right thing [in September] by not moving and that the [economy’s] numbers are going in their direction,” Dederick said. “They will say to themselves: ‘The evidence is consistent with what we decided to do.’ ”

However, the September report contained some news that might raise concerns about inflation. Average earnings increased 6 cents an hour to $11.92. This measurement of hourly wages has risen 3.5% during the last 12 months and average weekly earnings have climbed 4.4%.

The 3.5% hike in hourly wages could prompt the Fed to push up interest rates at the next meeting of its open market committee in November, said Michael L. Penzer, senior economist at the Bank of America.

The Fed cannot hesitate if it hopes to keep a winning hand in the struggle to keep inflation under control, he said. “If they wait to see the ‘whites of the eyes’ of inflation, it will be too late,” he said. “It is better to move in advance.”

Growth in output of goods and services “had to slow” from the extraordinary 4.7% rate during the second quarter, Penzer said. It probably dropped to the 2.5% range in the quarter just ended and the question is whether that will satisfy the Fed’s inflation hawks, he said.

There were 127.4 million Americans at work last month and 7 million unemployed.

The jobless rates for major groups: adult men older than 20, 4.5%, up from 4.2%; adult women older than 20, 4.5%, down from 4.6%; whites, 4.5%, up from 4.4%; blacks, 10.5%, unchanged; Latinos, 8.2%, down from 8.7%

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