Unemployment Dips to 4.8% With 316,000 New Jobs

WASHINGTON — The nation’s economy created a swell of jobs last month, pushing the unemployment rate back down to May’s 24-year low of 4.8% of the work force, the government reported Friday.

The Labor Department’s monthly survey showed that industry payrolls added 316,000 jobs over the month--a far stronger gain than expected--following a rise of 228,000 jobs in June. The unemployment rate in June was 5%.

Analysts said the survey shows the economy continues to be strong, despite a Commerce Department report Thursday indicating that the pace of the economy moderated during the second quarter of this year.

At the same time, the survey shows that wage levels remained flat in June, suggesting that, although labor markets are tight, there still is no sign that inflation pressures are about to return.

The good news on the job front was bolstered by two other sets of government economic statistics, both published and released Friday by the Commerce Department:

* Personal income of Americans grew by 0.6% in June--the largest gain in three months--while consumer spending increased by 0.3% for the second month, pointing to faster economic growth ahead.

* Orders to U.S. factories--a key indicator of the pace of economic activity in coming months--increased by a strong 1.2% during June, for the second gain in the last three months.

President Clinton rushed to claim credit for the economy’s performance, calling in reporters to say that the economic strategy he put into place in 1993 “created the conditions” for rapid growth.

Despite the ebullient statistical reports, however, the financial markets weakened, reflecting new fears that the strong economic activity might prompt the Federal Reserve Board to raise interest rates further.

The Dow Jones industrial average plunged 119 points before largely recovering, closing down about 29 points at 8,194.04. At the same time, the 30-year Treasury bond yield, a benchmark for long-term interest rates such as mortgage rates, shot up to 6.45% from Thursday’s 18-month low of 6.30%.

Analysts said a report by the private National Assn. of Purchasing Agents, showing that manufacturing activity rose in July, helped heighten the markets’ fears. The association’s index rose to 58.6%, from 55.7% in June.

Federal Reserve Board Chairman Alan Greenspan signaled last month that the Fed was unlikely to raise interest rates any time soon if the economy slowed, but he also left the door open to tightening if growth picked up.

Despite the adverse reaction in the markets, analysts said the July job-growth figures probably were bloated slightly as a result of technical factors relating to efforts to adjust them for seasonal patterns.

Cheryl R. Katz, an economist at Merrill Lynch, said the anomaly probably would depress next month’s job report. “On balance . . . the U.S. economy remains on a . . . healthy growth path,” she said.

The bulk of the job growth in July was concentrated in the service sector of the economy. The largest increase was in retail businesses, which rose by 65,000 jobs. Payrolls in the goods-producing sector declined slightly.

Gains also were posted among groups that traditionally have had high unemployment rates: The jobless rate for blacks, for example, fell to a 23-year low of 9.4% in July, down from 10.4% in June.

In a development that puzzled some economists, the unemployment rate for Latinos rose in July to 7.9%, up from 7.6% in June. The Latino rate has been volatile, however.

Friday’s report from the Labor Department marked almost a year that the nation’s unemployment rate has hovered at or below 5.3%, the level regarded as the benchmark for so-called full employment.

In addition, the number of jobs in the economy has continued to grow more sharply this year, averaging about 220,000 jobs a month, up from an average of 200,000 a month in 1996.

At the same time, despite the increasing tightness in labor markets, which has employers in some industries scrambling to find enough workers, inflation has remained in check, with seemingly little pressure to increase wages.

Friday’s report showed that average hourly earnings of rank-and-file production workers were unchanged in July following a scant 0.3% rise in June, continuing a trend in which wage increases appear to be slowing.

The length of the average workweek declined by half an hour in June, though analysts said it probably does not reflect any weakness in the economy.

Cynthia Latta, analyst at DRI/McGraw-Hill in Lexington, Mass., said the economy’s performance “continues to surprise and amaze.” Despite the plunge in the markets, she said, “we’re not seeing the kinds of wage increase that you’d expect.”

However, Merrill Lynch’s Katz cautioned that at least part of the July drop in the unemployment rate came because the size of the labor force--the number of people either working or looking for work--did not grow sharply.

If the size of the labor force increases significantly, then “that may lead the unemployment rate to edge up again,” she said.

* INFLATION JITTERS

Jobs report sends bond interest rates sharply higher. D1

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Fewer Out of Work

Nation’s monthly unemployment rates:

July: 4.8%

NUMBER OF NEW JOBS

In thousands

July: 316,000

Source: U.S. Department of Labor