U.S. jobless rate hits 4-year low average pay rises

November 05, 1994|By John E. Woodruff | John E. Woodruff,Sun Staff Writer

The nation's unemployment rate hit a four-year low in October and hourly wages took their biggest jump in 11 years. The report gave President Clinton a boost as he campaigned for struggling Democrats but deepened inflation fears and further battered financial markets.

Mr. Clinton, stumping in Minnesota with four days left to Tuesday's elections, seized on the monthly Labor Department report -- which also showed lengthening workweeks -- as evidence that his economic plan is working.

"We have to continue with this economic policy that puts people first," he said.

The jobless rate fell to 5.8 percent in October, from 5.9 percent in September and the lowest level since October 1990. Average hourly wages rose 8 cents from September, to a seasonally adjusted $11.24, the sharpest increase since September 1983.

Private economists, noting that low wage growth has been the key to keeping inflation tame in this recovery, greeted the report less enthusiastically than did the president.

"I think we are seeing the first signs of wage inflation, and that means we are going to see inflation accelerate over the next few months," said Alfred G. Smith III, chief economist at NationsBank Corp.

Stock and bond investors, wary of the effects of inflation and higher interest rates on the markets, also took a dim view of the numbers. The Dow Jones average of industrial stocks lost 38.36 points, to close at 3,807.52, and the yield on the 30-year Treasury bond, which rises as its price falls, climbed to a three-year high of 8.16 percent.

The October numbers add pressure on the Federal Reserve Board, which already was widely expected to raise short-term interest rates for the sixth time this year when its policy-setting Open Market Committee meets a week after the election.

"Financial markets already were anticipating a half-point increase the next meeting, and they will now focus on whether the Fed will have to go up again late this year or early next," Mr. Smith said. "So probably we'll see long-term rates ease up some more."

That's bad news for Marylanders, whose share in the national recovery still depends disproportionately on housing sales. The state's manufacturing base is weak and defense industries are still shrinking.

The effects of higher rates in Maryland are already apparent. In October, with mortgage rates easing up toward 9 percent, Baltimore-area sales of existing homes were down 10 percent from the same period a year earlier, and the number of contracts pending was down 26 percent, the Greater Baltimore Board of Realtors reported yesterday.

By Wednesday, Baltimore-area 30-year fixed-rate mortgage rates had reached 9.09 percent, and they can be expected to rise next week if bonds do not recover.

'We're heading up'

"It looks like next week will be quite interesting. I think we're heading up again," said Paul Havemann, of HSH Associates, a New Jersey-based consultancy that tracks local mortgage rates.

When housing sales surged late last fall, leading to additional waves of furniture and accessory purchases by new homeowners, Maryland at last seemed to come on board with the nation's economic recovery. But when home sales began to sag this summer under the weight of rising interest rates, Maryland's resurgence sagged with them.

By the end of September, Maryland had fallen to 47th among the 50 states in job growth, with a rate of 0.57 percent over the preceding 12 months, according to MBG Information Services, a Washington-based firm that tracks the state's economy.

Yesterday's report from the Labor Department showed that the average U.S. workweek lengthened to 34.9 hours in October, the highest since February 1987.

In manufacturing, the average workweek was 42.1 hours, the highest since April.

Only the net number of new jobs lent a note of moderation to the report. The increase of 194,000 was the smallest increase since January and well under most economists' predictions.

Worker shortages

But the jobless rate now seems entrenched below 6 percent, which many economists consider "full employment," and inflation concerns are mounting.

"With 5.8 percent unemployment, we are starting to hear of worker shortages in some industries, and that means some employers will have to bid up the price of labor, which is going to filter through into the Consumer Price Index," said David Donabedian, chief economist for Mercantile Bankshares Corp.

Wage costs, which account for about two-thirds of the prices of most products and services, have been a key force in inflationary surges since World War II.

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