U.S. jobless rate holds steady at 6%

July 09, 1994|By New York Times News Service

WASHINGTON -- A Labor Department report showing a sharp and unexpected surge in the number of jobs created in June gave financial markets jitters about inflation yesterday.

While the unemployment rate held steady at 6 percent, the increase in business payrolls of 379,000 jobs was considerably stronger than analysts had anticipated.

Coming on top of sizable upward revisions in the number of jobs created in April and May, the report seemed likely to push the Federal Reserve closer to another increase in short-term interest rates to prevent a surge in inflation -- a move it opted not to take at a policy-setting meeting this week.

Since inflation would lower the value of long-term bonds, the news caused prices of fixed-income securities to slump, driving rates up. The yield on the 30-year Treasury bond jumped to 7.69, the highest level since Nov. 9, 1992, the week of the last presidential election.

L Stocks initially declined but recovered and finished higher.

Traders' concerns were only magnified as the Clinto administration tried later to allay their fears about the economy and the dollar.

Within hours after the report was released, the dollar plummeted against other currencies after President Clinton, meeting in Naples with the leaders of other industrial countries, seemed to rule out support for it from the administration or the largely independent Federal Reserve.

When asked why the dollar was performing so poorly while he was describing the economy as on its "soundest footing in decades," Mr. Clinton suggested that governments ought not to intervene to stop the fall.

He said he expected the dollar would rebound on its own when the fundamentals of the U.S. economy were fully recognized.

"It is important not to overreact," he said, adding, "It would be a mistake for us to change the fundamental objectives that we all ought to have, which is to pursue global growth."

After Mr. Clinton's remarks sent the dollar below 98 yen, Treasury Secretary Lloyd Bentsen was dispatched to reassure the markets that the United States did not welcome a weak dollar and had not ruled out action to support it.

By itself, the jobs report signaled continued strength in the economy and was hailed by officials here as evidence that expansion remained brisk. Although the job gains were concentrated in the retail trade and other services, factory jobs grew by 34,000 to bring the total since October to about 100,000.

"It's a lot harder today to find people than it was a year ago," Frank N. Liguori, chief executive of Olsten Corp., a leading supplier of temporary business and health-care workers. He said his company has posted 20 percent year-over-year increases in billable hours since the first of the year, a trend implying continued robust growth for the economy at large.

Robust as the June job gains were, however, some special factors swelled the payroll total. Combined with contrary results in the less reliable survey of households, these factors appeared to blunt market fears that the economy might be on the verge of overheating.

Most economists have been expecting the Fed to raise interest rates to curb excessive growth, and yesterday's report, while perhaps hastening that day, was not so strong as to make a rate a increase a certainty.

"The evidence, if you read it, is encouraging on the inflation front," Mr. Clinton said. "I don't think we should do anything to undermine the recovery when we have still Americans who need jobs, we have still Americans who are working part time who wish to work full time. "

Indeed, wage pressures seem well in check. Average hourly earnings actually edged lower by a tenth of 1 percent last month and are up just 2.5 percent from the level of June 1993, the department's report also showed.

"Wage inflation remains very low in the face of these striking gains in employment," Norman Robertson, an economic consultant in Pittsburgh, said. He attributed this in part to exceptional growth in low-paying jobs, and to intense competition among workers in most regions.

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