US joblessness ebbs to rare historical low
It hasn't been so low since the dotcom heyday. But it may also portend an interest-rate hike.
It is not often that the nation's unemployment rate sinks to 4.4 percent.
It did in 2001, when dotcom entrepreneurs were still writing checks that didn't bounce. Jobs were also plentiful in the early 1970s, when the nation was at war in Vietnam. Ditto for 1957, when the economy had fewer women, teenagers, and minorities in the workplace.
Now, add October 2006 to the list.
In the last major economic report before Tuesday's showdown at the ballot box, the Labor Department says the unemployment rate is now at that level, down from 4.6 percent in September. It is a piece of good news for an embattled president and suggests the economy is stronger than many recent estimates. The downside is that the Federal Reserve, which has not raised interest rates in its past three meetings, may have to think about a rate increase early next year – which would keep inflation in check but could cause unemployment to rise.
"By its first meeting in 2007, the Fed will have to give active consideration to raising interest rates," says Lyle Gramley, a former Fed governor who is now a consulting economist at Schwab Washington Research Group. "The odds are that rates are going up, not down."
In the past, the Federal Reserve has stomped on the monetary brakes – pushing the economy into a recession – when the unemployment rate has dropped this low. But this time, Mr. Gramley says, the financial backdrop is different: Long-term interest rates are at the same level as June 2004, the stock market is up 15 percent, and the dollar is down 5 percent.
"Normally, when the Fed is raising short-term rates, you expect the stock market to weaken and the dollar to rise. [But current] financial conditions are still quite accommodative, and as a result [raising interest rates] is not likely to drive the economy into a recession."
The latest economic numbers, while positive for workers, may indicate a shift is taking place in the economy, says Gregory Miller, chief economist at SunTrust Banks in Atlanta. "More people are working, but we produced less. This suggests productivity is no longer a dominant force," he says. "Strong productivity is good for sustainability."
The buoyant job market is not a surprise to employment specialists. At Spherion, a staffing company based in Fort Lauderdale, Fla., demand remains strong in accounting, information technology, the legal field, sales, and marketing. "One of the exceptions is interest-sensitive areas like mortgage banking," says Brendan Courtney, senior vice president.
Layoffs normally increase at this time of year, says John Challenger of the Chicago outplacement firm Challenger, Gray & Christmas. But layoffs last month were down 15 percent compared with a year ago and 30 percent lower than September's rate. "It indicates the labor market is strong now."
One reason the unemployment rate has fallen so low is an increase in the number of self-employed people, according to Mr. Challenger. "The economy has really changed. People want to work for themselves."
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