Jobless rate declines to 30-year low

January figure of 4% another indicator that economy isn't slowing

Workers added at fast clip

Labor shortage causes Fed to worry about price increases

February 05, 2000|By William Patalon III | William Patalon III,SUN STAFF

Call it the economy that just won't slow.

The U.S. unemployment rate fell to 4 percent in January -- a 30-year low -- with companies adding workers at the fastest clip in two years, bolstering evidence that this record-setting expansion accelerated as it entered the new year.

Last month's decline dropped the unemployment rate to its lowest point since it hit 3.9 percent in 1970, the Labor Department reported. About 387,000 people joined company payrolls last month -- nearly 50 percent more than the 265,000 that economists expected -- representing the largest payroll rise since a jump of 408,000 in September 1997, the government said.

"I've been doing this for 25 years, and I've never seen anything like this," Sung Won Sohn, chief economist for Wells Fargo & Co. in Minneapolis, said of the booming economy.

Even as the economy entered its record 107th month of expansion Tuesday, proof has been mounting that growth -- which typically begins to wane late in an economic cycle -- has shifted into higher gear.

Gross Domestic Product grew faster in last year's fourth quarter than it did in the third quarter, and sales of new homes, after a dip in November, surged in December -- ending a record year, according to recent reports. Even the hard-pressed manufacturing sector rebounded last year, posting its best year since 1995.

The most recent measure of consumer confidence showed it at an all-time high, indicating that spending by individuals -- which powers two-thirds of the U.S. economy -- is not going to slow soon.

Yesterday did nothing to alter that viewpoint: In addition to the dip in unemployment, the Commerce Department said the number of housing completions rose in December, after falling in November, as builders finished work on new houses of all types. Housing completions rose 2 percent to a seasonally adjusted annual rate of 1.661 million units for December.

With the strong employment report, economists are predicting that the Federal Reserve will boost interest rates at its March 21 policy-making meeting and perhaps again after that.

On Wednesday, the Fed, worried that the surging economy will ignite inflation, bumped its overnight lending rate up a quarter-point to 5.75 percent, the fourth rate increase since June 30.

Stocks were mixed yesterday after the morning jobs report. The Dow Jones industrial average fell 49.64 points to close at 10,963.80, while the Nasdaq composite index climbed 33.16 points to end the week at 4244.14.

The Fed is worried that the strong employment market and shortage of available workers will add to pressure for price increases.

Companies are growing and need to hire people, yet candidates with the right skills -- particularly in the technology area -- aren't available, companies say. That leaves companies with the option of retraining current workers and plugging holes with labor-saving technology, or hiring workers from other companies -- often with handsome pay increases.

Average hourly earnings rose 0.4 percent last month after increasing 0.3 percent in December. Average weekly earnings increased to $467.10 last month from $463.68 in December.

Workers who have been out of college for one to three years are having a grand time in some sectors of the job market because of the salaries they can command, said Brendan Courtney, area director for Interim Financial Solutions, a recruiting and placement agency with offices at 120 E. Baltimore St.

"It's supply and demand -- and the supply of candidates isn't there," Courtney said. "Demand is outpacing the ability to find good people. As a result, salaries for young people are growing like crazy."

It's not just young workers who are in demand: it's anyone with the skills needed to help build companies. Information-technology skills are in high demand, as are financial services and engineering skills.

Construction also is hot: A jump of 116,000 workers in the building sector helped pump up overall job numbers and represented the largest increase in that sector since February 1984, yesterday's report said.

Overall, the worker shortage has forced companies to operate more efficiently, which has helped keep a lid on the prices of goods and services.

But the Fed worries that bigger increases in wages will swamp productivity gains and force companies to raise the prices charged for their wares.

The labor pool shrunk to 9.9 million workers last month from 10.2 million in December, according to new seasonally adjusted numbers. The labor pool includes those who aren't counted as part of the labor force but are willing to take a job, as well as people who are unemployed and actively seeking work.

Economists say the January employment numbers were probably strengthened by companies avoiding the seasonal layoffs that typically occur at this time of the year. The reason: It's so hard to find the workers that letting them go wouldn't be smart, said Anthony Chan, chief economist for BancOne Investment Advisors in Chicago.

Said Chan: "The mere fact that we have very tight labor markets also would suggest that a lot of the drop-off in retail jobs that would take place in January might not have taken place, as employers are certainly scrambling to keep every employee they can find."

The Bloomberg News service contributed to this article.

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