211,000 jobs created in March

Jobless rate falls to 4.7%

longer Fed crackdown feared

April 08, 2006|By JAMES P. MILLER | JAMES P. MILLER,CHICAGO TRIBUNE

The U.S. economy created 211,000 new jobs in March, and the unemployment rate unexpectedly dipped to 4.7 percent, according to a Labor Department report yesterday that underscored the labor market's continuing improvement.

The latest report affirms that "momentum in the job market is still very strong," said Danske Bank economist Peter Possing Andersen. But the report also appears to raise the likelihood that the Federal Reserve will continue tapping the economic brakes through interest-rate increases.

The number of jobs employers managed to create was only modestly higher than the 190,000 economists had forecast, but it was a solid performance nonetheless.

Although several million Americans remain jobless and many others are only able to find part-time work, the job picture has improved so much that economists are growing fretful about the possibility that labor costs may spur inflationary pressures.

If Federal Reserve officials decide that's the case, they will be more likely to extend their already lengthy program of quarter-point interest-rate increases.

"The good news for the economy and workers is that the job market is in great shape," said economist Joel L. Naroff, of Naroff Economic Advisors. "But for businesses and the Fed, this may not be great news."

On Wall Street, the always closely watched jobs report helped send stocks lower. The Dow Jones industrial average declined 96 points to 11,120.

The downturn came because the March employment report "appeared to reinforce expectations that the Federal Reserve will keep on raising interest rates," said A.G. Edwards market strategist Alfred E. Goldman,

Wages generally rise as unemployment falls, because employers must bid more for workers. There's a lag, generally of several months, between the time unemployment begins to ease and the time when wages begin to firm.

Unemployment had been expected to stay unchanged in March. Instead, it declined 0.1 to 4.7 percent, a four-year low first reached in January.

The unemployment rate hit a historic low of 3.8 percent during the white-hot job market of 2000; later, in post-recession 2003, unemployment hit a cyclical high of 6.3 percent. Since then, the rate has been edging downward at an accelerating pace.

Early in the economy's upturn, LaSalle Bank economist Carl R. Tannenbaum noted yesterday, companies were reluctant to rebuild their payrolls and employment lagged the improvement in general business conditions, creating what was called "the jobless recovery."

But as corporate profits have continued to build, employers' "hesitation seems to be in decline," he said.

The nation needs to generate about 150,000 new jobs monthly just to keep up with population growth. As job creation outstrips that break-even level, as it has for some time now, the jobless rate declines - and worries over wage pressure begin to surface.

Excluding the go-go employment years of the late 1990s, in fact, March's 4.7 percent rate matches the "lowest jobless rate in 32 years," noted BMO Nesbitt Burns economist Michael Gregory.

Payrolls are rising fast enough to push the unemployment rate down further," said High Frequency Economics economist Ian C. Shepherdson, and as a result the wage trend "is clearly upward." The Fed, he said, "has to stay vigilant" under such circumstances.

Although hourly wages rose only 0.2 percent in March over February, they are up 3.4 percent over the last 12 months, an expansion that Danske Bank's Andersen characterized as "rather strong," and one that is likely "to add to concern at the Fed."

The jobless rate has always been a heavily politicized piece of data, and yesterday's release was no exception.

James P. Miller writes for the Chicago Tribune.

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