U.S. Jobless Rate Drops to 24-Year Low of 4.7%
The nation’s brisk economy generated 284,000 new jobs during October, dropping the unemployment rate to a 24-year low of 4.7%, the Labor Department reported Friday.
But the job report, which was stronger than expected, also triggered a sell-off by Wall Street investors, who remain jittery about the prospect of developing labor shortages and potential wage inflation.
Although manufacturing, construction and service employment all surged during the month, wages increased only modestly and economic experts agreed that inflation appears under control. The ranks of the unemployed dropped 300,000 from September, when the jobless rate was 4.9%.
“We have an economy that is performing very, very well,” said Martin Regalia, chief economist at the U.S. Chamber of Commerce.
As the economy has grown and created jobs over the past year, hundreds of thousands of Americans have entered the labor market, providing a reserve that has prevented shortages and upward pressure on wages, experts said.
The U.S. economy has not achieved a jobless rate this low since October 1973, when Richard Nixon was president.
The only doubters Friday seemed to be stock market investors, who wonder when Federal Reserve Chairman Alan Greenspan will decide to boost interest rates and slow down the raucous and exuberant business expansion.
The markets were surprised by the unexpectedly good news, with job creation in October significantly higher than the monthly average of approximately 239,000 this year.
The Dow Jones industrial average fell 101.92 on Friday to close at 7,581.32, a decline of 1.3%. It recovered from a deeper afternoon plunge that took the index down 195 points.
The blue-chip indicator has been on a veritable seesaw since it fell a record 554 points on Oct. 27. For the year, the index is ahead 17%, although far below its August peak of 8,259.31
Economic experts are now betting that the Fed will boost rates, but not yet, and that Greenspan can delay acting because inflation is still dormant.
“Wage inflation is not, at present, an issue of concern,” said Jerry Jasinowski, president of the National Assn of Manufacturers.
Average hourly earnings rose to $12.41 last month, a gain of 6 cents, an amount “not out of line” with increases in recent months, according to Jasinowski. The increase has been 4.2% over 12 months, the largest such advance in eight years.
While wages have accelerated, spending on benefits such as health and pensions has slowed. The best measure of business’ total labor costs, the employment cost index that includes both wages and benefits, has risen a moderate 3.1% over the past year, the Labor Department recently reported.
Overall, the experts say, there is little chance of any imminent burst of inflation, despite the stock market’s jitters.
“Obviously, the economy has still got a lot of strength,” said Lyle E. Gramley, chief economist of the Mortgage Bankers Assn. and a former member of the Federal Reserve Board.
“We may be seeing some problems developing, but not of a major kind,” he observed. He predicted only some “modest tightening” by the Fed without any immediate action at the Fed’s policy-making meeting later this month.
“The fact that the stock market is heading south today indicated the market is vulnerable,” Gramley noted.
The stock market itself may accomplish the Fed’s job of slowing the economy, Gramley suggested. Another 10% decline in the market would inhibit consumer spending and discourage businesses from seeking new capital--sufficient to slow the economy without any direct Fed intervention, he said.
The U.S. economy also will be slowed somewhat by the recent turmoil in Asia, where currency depreciation and real estate collapses will dampen business and consumer demand for American goods.
Michael L. Penzer, senior economist at the Bank of America, agreed with other economists that the Fed would keep its hands off interest rates for at least the next two or three months, despite the evident strength of the Friday job report.
“The Fed is very lucky that inflation has been this low this long,” he said. “It is only a matter of time before they tighten.” He expects the Fed to act early next year.
Most observers credit Greenspan with a deft hand at policy-making, able to avoid any increases in interest rates although unemployment has dropped to the lowest level in a generation.
In areas adding jobs, manufacturing employment posted a gain of 54,000, with advances in industrial machinery and electronic components. Construction added 20,000 jobs, the biggest rise since May. The services sector added 100,000 jobs, with strong increases in computer services and medical offices and clinics.
“October’s employment gains were widespread and fairly robust,” Katherine Abraham, commissioner of labor statistics, told a hearing of Congress’ Joint Economic Committee.
There were 129.9 million Americans working last month, and 6.5 million unemployed. In September, there were 6.8 million unemployed.
“The American economy has now added 13.5 million new jobs since 1993 while inflation has remained low and stable,” President Clinton said.
“All this [provides] further evidence that our economy is the strongest it’s been in a generation,” he said.
In a rare show of agreement, labor joined business in lauding the extraordinarily durable economic expansion. “The news from labor markets is great--unemployment is down and wages are up,” said Thomas Palley, assistant director of economics at the AFL-CIO.
Experts suggested that, despite the stock market’s nervousness, the pool of labor is proving deep enough to prevent a resurgence of inflation.
About 2 million workers were added to payrolls last year, according to Philip Rones, assistant BLS commissioner. About 1.2 million of them were unemployed and looking for work. The other 800,000 were not active in the labor market--they had “given no indication they wanted a job,” he noted. But the rapidly changing job market enticed them. A person might indicate he, or she, is not looking for work, and “suddenly, next month they are employed,” said Rones.
The unexpected depth of the labor pool has defied the warnings of many economists, who said the full-employment level was 6.5%, and that any significant drop below that would trigger labor shortages and a wage explosion. It hasn’t happened.
Greenspan “should be lauded for allowing the unemployment rate to fall to uncharted territory for the last 20 months, while many in the economics profession were babbling about a “natural unemployment rate of 6.5%,” said Jared Bernstein of the Economic Policy Institute, a liberal think tank.
Among major population groups, the jobless rates last month were: 4.1% for men, unchanged; 4% for women, down from 4.4%; whites, 4.1%, down from 4.3%; blacks, 9.5%, down from 9.6%; and Latinos, 8%, up from 7.6%.
* HOLIDAY CRUNCH: A tight labor market is squeezing California retailers trying to hire seasonal help. D1
* SELLING AND SELLING: U.S. stocks declined on a wave of selling that began in Asia, then spread to Europe and Latin America. D2
