WASHINGTON — The nation's unemployment rate plunged in April to 4.3% of the work force--its lowest level in 28 years--while the economy once again began churning out hundreds of thousands of new jobs, the government reported Friday.
The unexpectedly large decline--from a 4.7% jobless rate the previous month--came as the number of jobs in the economy surged by 262,000, more than erasing a 24,000-job decline recorded in March, which is now regarded as a statistical fluke.
The continuing drop in the unemployment rate--a measure of the unusually tight labor market that has existed for the last few months--ordinarily might fuel worries that the Federal Reserve Board soon will increase interest rates to help ward off new inflationary pressures.
However, both economists and financial markets shrugged off that prospect--at least for the Fed's next policymaking meeting, scheduled for May 19--on grounds that pressures for new wage hikes have remained surprisingly mild.
The Dow Jones industrial average soared 93 points within a few hours of the release of the unemployment figures. The index closed at 9,055.15--up 78.47 points from Thursday's level--following three straight days of declines.
In many ways, the situation seems to be rewriting the economics textbooks. Most economists believe that inflation pressures begin to mount automatically when joblessness falls below 5.3%. But it has been under that level for more than a year, with no real inflation threat.
Lyle E. Gramley, a former Federal Reserve policymaker who now serves as chief economist for the Mortgage Bankers' Assn., said that the combination of solid economic growth, low unemployment and low inflation that now exists is virtually unprecedented in recent memory.
"Very few living Americans have even seen conditions as good as they are today," Gramley said. "Even in the 1960s, the last time the unemployment rate was this low, inflation was on the rise. It's a wonderful economy now."
One potential problem highlighted by Friday's figures is that the increase in jobs once again outstripped the growth of the nation's labor force--the total number of people who either have jobs already or are looking for work. Labor force growth has been slow all year.
This means that, unless the economy begins to grow more slowly, the unemployment rate likely would begin to decline even more rapidly and labor shortages would intensify quickly, creating pressure for larger wage increases.
However, economists continued to insist that the economy will begin to slow somewhat during the current quarter--partly because of the effect of the Asian economic slump and partly because the first-quarter's growth was buoyed by special factors, such as warm weather.
Indeed, Friday's figures showed that, while the total number of jobs grew relatively rapidly in April, payroll levels in manufacturing industries actually shrank by 10,000 jobs. And the length of the average workweek in manufacturing plants dropped by 1.1 hours.
At the same time, the average hourly earnings of rank-and-file production workers rose a comparatively modest 4 cents in April to a record $12.67, suggesting that wage pressures still are relatively restrained. Hourly earnings had risen 3 cents in March.
Analysts also are divided over what the impact of the Asian economic slump is likely to be. Although the effect on the U.S. economy has been modest so far, new orders for U.S. exports to Asia have fallen off sharply, and some economists expect that to show up visibly this quarter.
As has been customary during the last several months, the Clinton administration hailed the new figures as evidence that its economic policies are working.
Vice President Al Gore issued a statement saying that it is "obvious from this morning's [report] that America's economic engine is truly humming--lower unemployment, higher wages, more jobs and low inflation--proof positive that . . . we're headed in the right direction."
The Federal Reserve has been poised for months to raise interest rates to head off a new round of inflation, but policymakers have held back in hopes that the economy would slow by itself, possibly as a result of the Asian crisis.
The central bank also faces a political problem: With so few signs that inflation pressures are mounting, some policymakers believe it would be difficult to justify an interest-rate hike to the public and to Congress. The Fed last raised interest rates in March 1997.
Friday's statistics relieved some of the uncertainty that accompanied the job report for March, published a month ago, which showed job growth declining slightly while the overall unemployment rate edged up to 4.7%, from 4.6% in February.
Although analysts were not sure then whether the nation's job-creation machine had slowed or merely sputtered, Friday's report suggested that the March figures were a fluke and that the economy's growth rate remains strong.
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Rates Since 1970
April '98: 4.3%
Note: Annual rates, except for 1998 (monthly)
\o7 Source: Department of Labor\f7