WASHINGTON -- The nation's unemployment rate dropped slightly last month, but the good-news decline was overshadowed by the bad-news loss of 83,000 non-farm jobs -- the worst payroll dip in nine months.
The Federal Reserve immediately responded to yesterday's report by moving to lower interest rates again.
"It's a clear signal that the Fed must have read the employment report as being fairly bad news," said Rudolph Penner, director of economic studies with KPMG Peat Marwick and a former director of the Congressional Budget Office.
Although last month's unemployment fell to 7.6 percent, from 7.7 percent, according to the Labor Department, the drop was almost entirely due to the government-funded temporary summer jobs program.
The overall decline reflected a 167,000 drop in private-sector jobs and a gain of 84,000 government jobs, nearly all of which opened up at the local level with the help of a federal jobs program created after the Los Angeles riots.
But those summer jobs end soon, and the unemployment rate is expected to bounce back up this month as the program runs out and workers affected by Hurricane Andrew and those idled by the General Motors Corp. strike start filing claims.
"Put all that together, and September doesn't look good at all," said Diane Swonk, economist with First Chicago Corp. "We are looking at the [third] quarter ending on a very weak note, right before the election. These numbers were terrible for the Bush administration."
The most dismaying element of yesterday's data was the fall in non-farm employment, which defied a general expectation of an increase and underlined the moribund state of the economy.
The manufacturing industry registered its biggest decline in 18 months, down 97,000 jobs, centered on the aircraft and defense industries. That reinforced the impact that the current economic downturn is having on workers on the East and West coasts rather than in the nation's industrial heartland.
Sen. Paul S. Sarbanes, the Maryland Democrat who chairs the Joint Economic Committee, said: "More than 1 million manufacturing jobs have been lost during this recession, and fewer people now work in manufacturing than at any time since the bottom of the 1981-82 recession."
The latest negative economic news, hard on the heels of Thursday's Census Bureau announcement that 35.7 million Americans were living in poverty in 1991, can do little, if anything, to help President Bush's re-election prospects.
The census report said that the number of Americans living in poverty increased by 2.5 million over 1990, and that the median household income dropped last year by $1,077, after adjusting for inflation, to $30,126.
White House spokesman Marlin Fitzwater said the decline in unemployment "is an encouraging sign that the economy is improving."
But many economists shared the view of David Jones, chief economist with Aubrey G. Lanston and Co., New York security dealers, who said: "A bolt of lightning should have struck him when he said that.
"It's a dismal picture," he said. "The picture is so dismal, there is just no way to put a good reading on this. Basically, the only way companies can make profits is to lay off people, and that's going to push the economy right into the ground."
Although the Federal Reserve moved yesterday to pare the federal funds target rate by a quarter percentage point, to 3 percent, its response to the latest setback was restricted by the weakness of the dollar. The dollar has been hovering around record lows against the German mark since the German Bundesbank raised interest rates to curb inflation last month.
The spread between low interest rates here and high rates in Germany has sucked investment away from the greenback, depressing the value of the dollar and boosting the value of the mark.
With the U.S. economy stubbornly refusing to gain steam, economists said that, but for the weakness of the dollar, they would have expected more dramatic action by the Fed.
It limited its action to pumping money into the banking system to lower the fed funds rate, the rate banks charge each other for overnight loans.
The move, which affects short-term more than long-term interest rates, should lower adjustable mortgage rates from the current national average of 5.25 percent to nearly 5 percent over the next week, according to David Berson, economist with the Federal National Mortgage Association.
Fixed-rate mortgages could decline marginally from their current level of just below 8 percent, to 7.80 percent or 7.75 percent, in the next week or 10 days, he said.
The Fed took no action yesterday on the discount rate, which it charges banks for loans, and which has a more direct impact on long-term interest rates. The discount rate is now 3 percent.
Philip Braverman, chief economist with DKB Securities Corp. in New York, called yesterday's funds-rate move by the Fed "ephemeral," adding: "It will do virtually no good at all. The Fed does not recognize the severity of the situation it is dealing with.