THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Saturday, August 6, 1994 TAG: 9408060195
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY JAMES H. RUBIN, ASSOCIATED PRESS
DATELINE: WASHINGTON LENGTH: Medium: 86 lines
The U.S. economy kept producing jobs at a brisk rate last month - more than a quarter-million in all - even as unemployment edged upward to 6.1 percent.
The Clinton administration hailed the creation of 259,000 jobs as good news for American workers. But financial markets, worried that higher interest rates were on the way, turned downward after Friday's Labor Department report.
Analysts said the hiring figures made it more likely the Federal Reserve would move to boost short-term interest rates again. Bond prices dropped sharply after the report, and stock prices quickly followed.
In June, 365,000 jobs were created. Since the start of the year the economy has added nearly 2 million jobs to bring the total to 113.6 million.
``Today's figures are further proof that job growth is continuing its solid, steady course,'' said Labor Secretary Robert Reich. ``We're right on track.'' At a White House ceremony marking the first anniversary of the administration's economic program, President Clinton said, ``The future looks good.''
The job-growth figures seemed at odds with other recent data showing slower economic expansion, particularly in consumer spending. The higher payrolls also appeared to contradict the rise in the unemployment rate, which had held steady at 6 percent in May and June.
``We are getting a response to the more aggressive hiring attitude that businesses embarked on this spring,'' said economist Robert Dederick of Northern Trust Co. in Chicago. ``It hasn't finished yet, but with demand growth slowing we may see a fading of employment gains.''
The unemployment rate, derived from a survey of households, showed more Americans looking for work last month. The job-growth numbers come from a separate survey of employers' payrolls.
Eugene Sherman, of the Wall Street firm M.A. Schapiro & Co., said the unemployment rate increase may be misleading. ``Clearly the economy is doing very well. It's broad-based with momentum,'' he said.
``We are probably close to full employment,'' added Professor Norman Robertson of Carnegie Mellon University in Pittsburgh.
``This is in line with the Fed's notion that in fact the economy's growth is continuing and perhaps at a rate above the speed limit,'' said Gary Ciminero, chief economist of the Fleet/Norstar Financial Group.
Upcoming data on consumer and producer prices for July may provide a ``more telling verdict'' on whether the Fed will tighten at the Aug. 16 policy meeting, Ciminero said. krt
Analysts predicted the Fed would raise short-term interest rates by at least a quarter percentage point when the central bank's policy-setting Federal Open Market Committee meets Aug. 16. Since February, the Fed has pushed one rate it controls from 3 percent to 4.25 percent, but it has been nearly three months since the last increase.
Recent strong employment growth has created fears that wages will be forced upward as worker shortages develop, leading to higher inflation.
``At this stage there's no reason to be concerned about inflation.'' said Reich. ``We still have room for growth. We're not in any way bumping up against the wall.''
Indeed, some analysts said the Federal Reserve may be overly concerned that the economy is reaching capacity and could needlessly push borrowing costs higher.
But, said Ciminero of Fleet/Norstar, overall, the report ``is telling us we're getting a deepening and broadening of the jobs expansion. It's unimpeded. Hiring plans and hiring intentions and the basic demand for labor continues high.''
Federal National Mortgage Association chief economist David Berson saw hints of slowing in the report, noting a drop in manufacturing work hours and little manufacturing job growth.
Overall, though, the report shows that the economy continues to experience ``reasonably strong forward momentum,'' Berson said.
Most of July's job growth was in services, where payrolls swelled by 138,000, and in retailing, up 75,000. There were big gains at temporary help firms, in health care and at restaurants. Construction jobs rose by 25,000, in line with recent moderate increases. Manufacturing jobs were up only 6,000, held back by a strike at Caterpillar Inc., which makes heavy machinery, and by temporary auto plant closings in preparation for the new model year. MEMO: Knight-Ridder News Service contributed to this report.
KEYWORDS: UNEMPLOYMENT by CNB