U.S. Jobless Rate Hits 5-Month Low; Stocks Post Gain

Jobs boomed at department stores, banks, brokerage firms and factories in March, trimming the national unemployment rate to 5.2%, the lowest level in five months, the Labor Department reported Friday.

But the good news--175,000 new jobs added to business payrolls--sparked confusion in financial markets already battered by large losses in stocks during a recent plunge that has imperiled the nation’s long-running bull market.

The Dow Jones industrial average, on a roller-coaster ride all day, first dropped more than 70 points, then recovered rapidly and finished with a gain of 48.72 for the day, closing at 6526.07. Still, the widely watched index of blue-chip stocks has lost virtually all of 1997’s gains in recent weeks. Most of the drop occurred after the Federal Reserve Board boosted interest rates on March 25 to stem potential inflation.

Although stock investors were temporarily reassured Friday, a rise in interest rates for Treasury bonds showed that the bond market remains jittery about inflation. The Treasury 30-year issue, a key barometer, closed Friday at a yield of 7.12%, up from 7.06% the day before.

Though inflation has not yet become a problem, most economic experts are betting the Fed will raise interest rates again next month.

“The economy hasn’t slowed yet--it is still going strong,” said Lyle E. Gramley, chief economist for the Mortgage Bankers Assn. and a former member of the Federal Reserve Board.

Echoing the view of Federal Reserve Chairman Alan Greenspan that inflation is a serious potential threat, Gramley predicted that the board will raise rates in May “to avoid trouble later on.”

By raising the cost of borrowing for consumers and corporations alike, the higher interest rates are expected to slow down purchasing and investment, thus taking the edge off the robust economic expansion that has been underway for six years.

The 5.2% March jobless rate, down from 5.3% in February, is evidence of a “healthy economy,” said White House spokesman Mike McCurry. Indeed, the new figure puts the unemployment rate at its lowest level since an identical figure of 5.2% last October.

It also raises the administration’s hopes that unemployment can edge down to 5% or lower--a level not seen since 1989. “We can actually have 5% or lower unemployment in this country without having inflation if we do it with discipline,” President Clinton said in a statement.

But most economists believe that a continued tightening of the credit supply by the Federal Reserve could result in a climbing unemployment rate by the end of the year.

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Friday’s report was filled with indicators of strong business activity across a broad spectrum of industries:

* Unprecedented numbers of people are streaming into the work force as new jobs are generated: 63.8% of the population age 16 and over was working, a record.

* Factory overtime averaged 4.9 hours a week last month, the highest level since the government began keeping such records in 1956. And factory employment rose 16,000, following a pattern of increases for the previous six months.

* Retail trade added 43,000 workers, with big increases at department stores and food stores, according to the Labor Department.

* The service sector boasted 111,000 new jobs, with advances in computer and data processing services, health services and temporary jobs through employment agencies.

* Companies that offer computer and data processing services are enjoying a “robust pace of job growth,” Katherine Abraham, commissioner of the Bureau of Labor Statistics, told a news conference. Their payrolls have grown by 150,000 in the last year, and the fast-growing industry now employs 1.3 million people.

* Finance jobs had a large increase, 17,000 jobs in the month, “reflecting growth in banks and in security and mortgage brokerage [firms],” Abraham said.

The jobless rate has been well below 6% for more than two years, confounding many economists who said that figure was a so-called natural rate of unemployment. Dropping below that level would trigger wage hikes and inflationary surges, they said.

However, their baleful predictions have not materialized. The boost in interest rates last month was a tactic to slow the economy gradually and forestall future inflation, rather than an immediate reaction to any direct evidence of inflation.

“Interest rates already are very high in real terms . . . and there are no signs of inflation,” said Gordon Richards, chief economist for the National Assn. of Manufacturers.

“You can look through the [employment] reports for evidence of wage inflation and tightening labor markets, but it is hard to see,” said Dean Baker of the Economic Policy Institute, a liberal think tank.

He and Richards, divergent in their political views, are among those who believe that the Federal Reserve should not raise interest rates again and who express concern that such a move would unnecessarily cool the economy. But like most economists, they expect the Federal Reserve to make another preemptive strike next month.

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With the jobless rate in the range of 5.2% to 5.4%, there are no signs of serious, persistent labor shortages, said Philip Rones, assistant commissioner of labor statistics.

Average hourly earnings rose 5 cents last month to reach $12.15, the Labor Department said Friday. Earnings have risen 4% during the last 12 months, somewhat faster than the pace in recent years. However, corporate expenses for benefits, notably health costs, have slowed drastically.

This means that the total cost of compensation--pay plus benefits--is not exerting undue inflationary pressure, economists believe. There were 129.2 million Americans working last month and 7.1 million unemployed. Among most major groups, the jobless rates: men, 4.4%, unchanged from February; women, 4.7%, unchanged; whites, 4.5%, unchanged; blacks, 10.7%, down from 11.3%; Latinos, 8.6%, up from 8.1%.

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Jobs Increase

News that 175,000 jobs were added in March sparked fears of more interest rate increases by the Federal Reserve.

Monthly jobs increase in thousands

March: 175,000

. . . and Dow Rebounds

But the Dow, which plunged nearly 263 points in the previous four days, headed back up, rising 49 points.

Friday’s close: 6526.07