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Jobless Rate Falls to 6.4%, Igniting Fears of Inflation


WASHINGTON — The national unemployment rate dipped to 6.4% in April as the robust economy created a larger-than-expected 267,000 new jobs, the Labor Department reported Friday, but the good economic news rattled jittery stock and bond markets, which fell amid fears that inflation may accelerate.

California unemployment rose to 9.6%, up from 8.6%, and analysts were disappointed with the figure. But they also saw signs that the state's economy is improving slightly. Many of the additional unemployed Californians were job seekers who re-entered the market after being discouraged for so long that they had stopped actively looking for work. They had not been counted in recent unemployment statistics.

In Orange County the unemployment rate stayed flat at 6.7% in March, the most recent month for which figures are available. Because the monthly jobless statistics for the individual counties are computed after the state and national rates, the April figures for Orange County won't be released until later this month.

In California, "people are being drawn back into the labor force" but the economy is not yet creating enough jobs to fill their expectations for returning to work, said Thomas Plewes, associate commissioner of labor statistics.

The state gained a meager 4,500 jobs in April and total employment still remains more than half a million below its 1990 peak. "It sure isn't much of a recovery," said Larry Kimbell, director of the UCLA Business Forecasting Project.

At a White House news conference, a jubilant Labor Secretary Robert B. Reich said that the national jobs report, with unemployment falling from 6.5% in March, "gives us a lot to crow about." But stock and bond investors were not impressed:

* The Dow Jones industrial average of blue chip shares fell 26.47 points to close at 3669.50, after plunging more than 53 points earlier in the day.

* Falling bond prices led to higher interest yields, with the key 30-year Treasury bond soaring to 7.55%, up from 7.33%, and reaching the highest level since December, 1992.

* The Federal Reserve Board, which has hiked rates three times since February, will be under pressure when its policy-making committee meets May 17, to drive up the cost of money yet again to calm the markets. Higher interest rates would slow the pace of economic activity, presumably preventing the kind of rapid rise in prices that investors fear.

There are no immediate visible signs of inflation: consumer prices rose just 2.5% in the year ending in March. However, the financial markets are fearful that a falling jobless rate could lead to labor shortages, upward pressure on wages and a resurgence of inflation.

The Clinton Administration is sticking to its forecast of steady economic growth without any overheating of prices.

"I think it's impossible to outguess the markets and I'm not really going to try," Laura D'Andrea Tyson, who chairs the President's Council of Economic Advisers, told the White House news conference.

"I would say to those market participants who might have a concern about inflation . . . that this report is showing us, if you look over the past year, average hourly earnings have only increased about the same rate as inflation. . . . " Tyson said. "So we really have a very good cost situation and a good competitive situation."

The uncertainty for wary investors is whether shortages of workers will occur as unemployment falls and whether product prices will rise as output comes closer to capacity in various industries.

"While the April report may cause some indigestion on Wall Street as another indication of inflation, we believe that sufficient excess capacity still exists to hold the line on inflation over the next several months," said Robert D. Barr, deputy chief economist of the U.S. Chamber of Commerce.

"Over the longer term we expect that the higher short-term interest rates engineered by the Federal Reserve will prevent a new outbreak of inflation," he said. Further, it's likely that the Fed will continue to ratchet up interest rates "at least a couple of more times."

The gain of 267,000 jobs would have been even larger but for the strike in the trucking industry, which idled 70,000 workers, Katherine G. Abraham, the government's commissioner of labor statistics, told a hearing of Congress' Joint Economic Committee.

Construction, health services and retail trade all showed increased employment for the month, she said. "Growth in April was especially strong in eating and drinking places and in auto dealers and service stations."

In manufacturing, employers are still hesitant to hire new workers, preferring to pay overtime to existing employees. Overtime hit 8.4 hours a week in the auto industry, and 10 hours at sawmills. The average workweek in manufacturing was 42 hours, the highest level since the end of World War II.

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