Favorable Job Report Lifts Dow to Record High

By JONATHAN PETERSON

March 6, 1999 12 AM PT

TIMES STAFF WRITER

WASHINGTON —

The U.S. economy last month turned in another stellar performance of job growth with little inflation, the Labor Department said Friday in a report that propelled the stock market to an all-time high and suggested that the Federal Reserve will not raise interest rates in the near future.

The economy added 275,000 payroll jobs in February, paced by strong advances in retail and construction, while average hourly wages edged up just a penny, according to the report. The unemployment rate remained exceptionally low, meanwhile, creeping up to 4.4% from 4.3%.

“We’re doing great,” declared Brian S. Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson, an investment bank in Chicago. “The economy is in that most miraculous of places, which is strong growth with no inflation, and this report clearly shows it.”

The stock and bond markets skyrocketed on the news, with the Dow Jones industrial average rallying 268.68 points to close at 9,736.08, the loftiest finish ever. Bond prices rose and interest rates dropped, reflecting a dramatic decline in fears about inflation. Interest rates on the benchmark 30-year Treasury bond slid to 5.60% from 5.69% on the news.

But despite such euphoria, the report was not universally favorable: It highlighted continuing injury to U.S. manufacturing, which shed 50,000 jobs last month, largely in response to ongoing woes overseas.

“I think, in truth, what’s going on is that the factory sector is still struggling,” said James Glassman, senior U.S. economist at Chase Securities in New York. “. . . There’s nothing to show that factories are on the mend.”

Still, the problems in manufacturing were overshadowed by a larger theme of job growth with no hint of spiraling labor costs. Many analysts expect U.S. economic growth to moderate this year from the buoyant 3.9% pace of 1998. Yet forecasters increasingly have been revising their predictions upward, amid a stream of upbeat evidence that the economy continues to cruise forward.

Friday’s report was seen as reinforcing the argument of economic health, with the 275,000-job gain exceeding expectations and following a revised 217,000 increase for January.

In addition, the Federal Reserve on Friday released data showing that consumers in January embarked on the largest spree of credit purchasing in three years.

The notion that so much economic activity is taking place with little sign of emerging inflation impressed experts, who have been watchful for signs that the booming economy, coupled with increasingly scarce labor, would soon lead to a round of price hikes.

“We all grow up thinking that strong growth produces inflation,” noted Glassman. “It’s just not happening.”

According to the Labor Department, average hourly earnings edged up just one cent in February to $13.04. That represented an increase of 3.6% over the last year, the smallest gain in 19 months. Last spring, by contrast, average hourly earnings were increasing at a 4.4% rate, fueling concerns that inflation would soon emerge.

“Despite an undeniably tight labor market, wage pressures remain tame,” said Bruce Steinberg, chief economist for the Merrill Lynch investment firm in New York.

Construction jobs jumped by 72,000 in February, the job report said, aided by mild winter weather. Service industries added 263,000 jobs, including a gain of 123,000 jobs in retail trade--the biggest one-month jump in retail jobs since February 1988. Retail job increases were reported by department stores, restaurants and furniture retailers.

Still, the economic landscape is not without problems. The loss of 50,000 manufacturing jobs last month brought job declines in the beleaguered factory sector to 337,000 since last March and suggested that manufacturing may not yet be enjoying a broad-based comeback from the troubles that were sparked by Asia’s economic imbroglio in 1997.

“Lacking any other way to combat the crisis overseas, manufacturers are being forced to reduce the number of their employees,” said Gordon Richards, an economist for the National Assn. of Manufacturers.

He noted, however, that there are “two faces” to the manufacturing economy, with certain sectors, such as technology and automobiles, continuing to fare well, while commodity-based industries, such as energy, have been hit much harder by overseas recessions, according to the manufacturers’ group.

Earlier this month, a survey of factory executives fueled hopes that manufacturing was about to turn the corner, with the manufacturing economy expanding in February for the first time in nine months. That news was followed this week by a Commerce Department report that new orders to factories surged in January for the second straight month, a figure that largely reflected aircraft orders.

Yet fewer manufacturing industries added jobs in February than in January, according to the new report.

More broadly, economists on Friday pointed out that the percentage of industries--non-manufacturing as well as manufacturing--expanding payroll employment last month (53.4%) was barely higher than in January and substantially lower than in December, when the figure was 56.6%.

Wesbury described this indicator as signaling “a clear deceleration in employment growth across industries, and that is a slightly worrisome sign as we move into the next couple of months.”

Yet in a climate where signs of an economic boom had prompted widespread worries that the Fed would raise interest rates at the March 30 meeting of its policy committee, evidence of slower growth was greeted happily by some investors.

“They’re very uncertain about where the U.S. economy is going,” Glassman said of Fed officials. “I think the Fed feels like they’ve got time” to make decisions on interest rates.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Jobless rate edges up . . .

Monthly jobless rate since ’98

Feb. ‘99: 4.4%

. . .and Dow surges

Weekly closes since December

This week: 99736.08

****

WHAT’S HOT / WHAT’S NOT (Jobs gained or lost in February)

Retail: +123,000

Construction: +72,000

Government: +22,000