Hot job market boosts likelihood Fed will raise rates
A 30-year low jobless rate reflects vitality of economy and presagesbig Christmas season.
NEW YORK — The Great American Jobs Machine continues to hum.
Laid-off workers are finding new jobs, employers are recruiting skilled tradesmen with higher wage offers, and many people are working longer hours since their employers can't find enough people for extra shifts.
That's the latest snapshot from the jobs market - an arena that is so hot that on Friday the government reported the October unemployment rate reached 4.1 percent, the lowest level since January 1970.
The low-unemployment report is likely to mean that retailers will have a good holiday season, as some early forecasts have indicated. And economists believe it means the economy is probably growing at about a 4 percent rate in the current quarter - a very healthy pace.
"There are not a lot of signs the economy is slowing down," says Don Ratajczak, an economist with the Georgia State University Forecasting Service in Atlanta.
The latest unemployment rate is one of the last major economic reports the Federal Reserve will look at before it meets on Nov. 16. Economists remain divided over how the Fed is likely to interpret the report.
"The Fed is faced with a dilemma: Do they give the economy more time to see if it's slowing or do they raise rates?" says David Orr, chief economist for First Union Bank in Charlotte, N.C. "I'm in the camp that says, by a whisker, they will vote to raise the rates."
But it will be a tough call. The latest report, for example, shows very little inflation. Wages in the month only rose by 0.1 percent.
Fed Chairman Alan Greenspan, though, will undoubtedly dig deeper into the report. He will note that the number of workers who are not officially included in the work force but would like to work has declined. And the number of part-time workers dropped as these people found full-time jobs.
At the same time, the average workweek was up - at the same level as in February this year, when the economy was hurtling ahead at a 6 percent annual rate.
"This report indicates companies still have good orders and are running out of people to hire part-time," says Paul Kasriel, an economist with Northern Trust Company in Chicago.
Mr. Ratajczak says the tight labor market is particularly noticeable in the Atlanta region. "We just opened two malls and neither will be fully staffed by Christmas," he says. "We joke that you'll have to take a number to see if you can find a clerk."
Atlanta's tight labor market is mirrored in many other regions, according to a Federal Reserve report issued last week. The Beige book, as the Fed report is called, also found some indications of rising prices - the bane of central bankers. But Fed economists who put together the report thought they saw some signs of economic slowing as well.
Some slowing has taken place in the housing sector, which is sensitive to changes in interest rates. But in the last week, long-term rates have declined - to below 8 percent for the first time in several months. "A lot of people are going to be rushing back to buy houses with this decline in rates," says Mr. Kasriel.
The decline in interest rates helped set off a rally on Wall Street. "The psychology has shifted to a more positive frame of mind," says Mr. Orr. On Friday, the Dow Jones Industrial Average gained 64.84 and the Nasdaq Index closed at a record high.
(c) Copyright 1999. The Christian Science Publishing Society