US Unemployment Rate Drops Lowest in 30 Years

Published May 6th, 2000 - 02:00 GMT



The US jobless rate plunged to a 30-year low of 3.9 percent in April, heralding a likely sharp hike in interest rates in order to curb inflation as employers scramble to find workers in a shrinking labor pool, analysts said Friday. 

The US economy created 340,000 non-farm jobs last month, surpassing expectations of a 310,000 increase, as the unemployment rate fell to 3.9 percent from 4.1 in March. It was now at its lowest level since January 1970 according to the Labor Department. 

Analysts saw the data, coming after a spate other strong reports on the US economy, as all-but ensuring that the Federal Reserve will raise interest rates by 50 basis points, or half a percentage point, when its Federal Open Market Committee meets on May 16. 

"When it couldn't get any uglier, it did," Merrill Lynch chief economist Bruce Steinberg said of the Labor Department report. 

"It just about guarantees that the Fed will move 50 basis points at the May 16 meeting, and it raises the possibility of another 50 basis point move after that." 

The US central bank has raised its benchmark federal funds rate in quarter-point increments five times since June, to its current level of six percent. But such credit-tightening moves have yet to slow US economic momentum by any appreciable amount. 

President Bill Clinton, in comments to reporters late Friday, hailed the decline in joblessness and appeared to be signaling to the Federal Reserve that a rate hike was not necessary, in the light of technology-driven productivity gains which tend to keep inflation in check. 

"I think (it) should be quite encouraging, not just to the Fed but to all Americans, that basically the productivity of the workforce continuing to be fueled by information technology has enabled us to have an amazing amount of growth and low unemployment at quite modest levels of inflation," Clinton said. 

On Wall Street, traders shrugged off the employment report and the likelihood of higher rates. Analysts said the market had already factored in a 50-basis point hike. 

The Dow Jones Industrial Average closed 165.37 points in positive territory at 10,577.86. 

"The market has increasingly been pricing in the risk of a half point move on May 16," according to Standard and Poor's economist Rick McDonald. The jobs data was "stronger than expected, and calls for such a move, given that it does little to suggest that economic growth is slowing." 

Average hourly earnings, closely watched by Fed Chairman Alan Greenspan as an indicator of wage-driven inflation, gained 0.4 percent in April, after increasing 0.3 percent in March. 

In the first four months of 2000, according to Merrill Lynch's Steinberg, wages rose at a 4.5 percent pace, its fastest in two years. 

At the same time, the pool of available workers, people currently unemployed but who would take a job if offered, shrank to 9.88 million -- a finding certain to increase Greenspan's anxiety level. 

The chairman repeatedly warns that in such an economy consumer prices will be pushed higher as employers raise wages in order to find and retain workers. 

The Fed's "Beige Book" summary of US economic conditions, released Wednesday, found intensifying labor shortages and upward wage pressures throughout the country. 

The Labor Department last week said its employment cost index, covering wages, salaries and benefits, jumped 1.4 percent in the first quarter of the year, the sharpest quarterly increase since 1989. 

On Thursday, the government reported that the pace of labor productivity growth slowed in the first quarter to 2.4 percent from 6.9 percent in the final three months of 1999. 

While the first quarter performance was respectable, it tended to confirm Greenspan's caution that productivity growth -- often credited with having held US inflation in check -- could not be expected to increase as rapidly as it had in the recent past -- WASHINGTON, (AFP) 


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