May 9, 1998
Jobless Rate Falls to 4.3 Percent, Lowest in Decades
Economic Scene: Should Fed Make Pre-emptive Strike at Inflation? (May 7) Economy Continues to Surge Despite Asian Financial Crisis (May 1) March Unemployment Rises (April 4) Job Growth Continued to Surge in February, U.S. Reports (March 7)
The Labor Picture in April
Join a Discussion on Inflation
By SYLVIA NASAR
he nation's unemployment rate tumbled in April to 4.3 percent, the lowest level in nearly three decades, and employers added more than a quarter-million jobs to payrolls, the Labor Department said Friday.
The steep drop in unemployment, from 4.7 percent in March, is superb news for most Americans whose pay is now rising faster than the cost of living and who are employed in greater numbers -- 64.2 percent of the population -- than ever.
Credit:The New York Times
"It's a great number," said Arthur J. Rolnick, senior vice president of research at the Federal Reserve Bank in Minneapolis. "This is exactly what we have been shooting for for almost 20 years: strong growth and low inflation."
But signs that the labor market is getting tighter are also flashing yellow lights for forecasters and investors. They worry that Alan Greenspan, the chairman of the Federal Reserve, is now a step closer to raising interest rates at the central bank's next monetary policy meeting, on May 19. Other things equal, higher rates tend to slow the economy and thwart inflationary pressure by reining in interest-sensitive purchases like houses, cars and, especially, stocks.
Investors, on the lookout for hints of inflation or clues to the Federal Reserve's next move, reacted relatively calmly. Prices in the bond market eased slightly but there was no selloff. And the stock market rose, snapping a three-day decline, as investors interpreted the strength in the job market as a sign that consumers would keep spending and corporate earnings might hold up better than expected.
The size of the decline in joblessness may have been exaggerated by an unexpected drop in the number of workers who reported that they were working or looking for work -- a figure that zigs and zags from month to month. But strong growth in employment in April, including self-employment, accounted for more than half the decline in the jobless rate. And the improvement was widespread, affecting every major demographic group. For Hispanic workers, the April unemployment rate of 6.5 percent was the lowest since data were first collected separately in 1973; for blacks, the 8.9 percent rate was the lowest in all but one month since 1973.
"You always have to be cautious with one month's data," said Tom Nardone, chief of the division of labor force statistics at the Bureau of Labor Statistics, which compiles the jobs report. "But it does look as if unemployment has ratcheted down again."
The report underscored the very strong start to the second quarter. The momentum in the job market is such that most economists, inside the Fed and out, expect the unemployment rate to edge down even further.
"There's still room to move down," said Alan Krueger, an economist at Princeton University.
That does not mean unemployment can fall forever, of course. Few economists believe that unemployment can stay at, say, 4 percent for a long period of time without causing inflation to speed up. Job growth, which had stalled in March because of unusually cold weather, was back to the fast pace of most of the last year. Jobs in construction, restaurants and retail stores rebounded in April. Payrolls of local governments swelled sharply. Companies in the services sector did a lot of hiring, adding 139,000 jobs. Most of the jobs were in finance, insurance, real estate and computer services, exactly those parts of the economy where demand has been booming.
The rapid pace of hiring is leading to shortages of certain kinds of workers. Thomas Donohue, president of the U.S. Chamber of Commerce, who has visited 60 cities in the last seven months, said trucking companies, hotels, restaurants and hospitals were facing the most acute shortages of qualified help. High-technology companies, from telephone companies to software developers, are having trouble filling vacancies as well. "There's been a major acceleration in retirements, and the hot economy is demanding more people than ever before," Donohue said. "It's going to get worse."
Manufacturing, buffeted by the economic crisis in Asia and a pile-up in inventories at the end of last quarter, is virtually the only cool spot in an otherwise hot labor market. Some 10,000 factory jobs disappeared last month, mostly in export-sensitive industries like electronics and heavy machinery. But Nardone of the Bureau of Labor Statistics pointed out that the job losses were small relative to the strong gain of 169,000 industrial jobs from September through January.
April was an opportune time to go job hunting. Nearly 700,000 unemployed workers found jobs. The number of jobless fell below 6 million and the number of people who had been out of work for 15 weeks or more shrank sharply.
Almost every major demographic group had an easier time finding work. For teen-agers, the jobless rate fell to 13.1 percent, and for high school dropouts, to 7 percent. Unemployment among workers with only high school degrees and those with some college, roughly 60 percent of the work force, fell the most. Their unemployment rates went down to 3.9 percent and 2.7 percent respectively.
Workers are taking home real pay gains as wages continue to go up faster than inflation. Hourly earnings of production and nonsupervisory workers rose 4 cents in April, to $12.67, and are up 4.4 percent over April 1997. The Consumer Price Index has risen just 1.5 percent over that period.
Wage inflation, while hardly alarming, is creeping up. Compared with the 4.4 percent increase of the last year, wages grew just 3.7 percent and 3.1 percent in the two previous years. Not surprisingly, given the buoyant stock market, the biggest gains in pay are showing up in the services sector in general and financial services in particular. Pay in finance, insurance and real estate was up 7.3 percent from a year earlier, for example.
Despite the boom in construction, however, the pay gains for hardhats is less than 4 percent, while factory pay is just inching up, at less than a 3 percent annual rate.
For the last couple of years, solid growth in productivity has offset part of the rise in wages, and the strong dollar, lower oil prices and the shift to managed health care have helped suppress price pressures. For those in the central bank who believe that the labor market is not a good predictor of inflation, Friday's report did nothing to raise alarms. But for those who believe the opposite, Friday's report confirmed longstanding fears.