ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Saturday, March 9, 1996 TAG: 9603110088
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
Wall Street plummeted Friday in a major sell-off triggered by what had seemed to be splendid economic news - a drop in the nation's unemployment rate and the biggest jobs gain in more than a decade.
Worried investors presumed that the unemployment news - an improvement in the jobless rate from 5.8 percent to 5.5 percent - was a sign of a strengthening economy that would mean no more interest rate cuts from the Federal Reserve.
The Dow Jones industrial average closed down 171.24 points, at 5,470.45, in the third-worst point decline in history. In a wild trading day, stocks at one point were down 200 points. Bond prices suffered their worst trading day in five years.
The stark market reaction was in sharp contrast to the good news embodied in the Labor Department report. The gain of 705,000 payroll jobs last month - the biggest increase since September 1983 - was more than double what analysts had expected.
The February gain, while partially a rebound from a loss of 188,000 jobs in January, still reflected widespread strength in a number of areas. Jobs were up strongly in business services, construction, retailing and even in manufacturing, which had been pummeled by layoffs over the last year as factories cut back production.
``This employment increase was stunning,'' said Norman Robertson, economist at Carnegie-Mellon University in Pittsburgh. ``Just when everybody starts writing obituary notices for this economy, it comes to life.''
Mark Vitner, an economist with First Union Corp. in Charlotte, N.C., said "the extremely negative reaction" in the bond and stock markets to the employment report "increases the risks to the economy.
"If yields stay near current levels," Vitner said, "higher mortgage rates will snuff out the recovery in home sales just as the important spring selling season is getting under way."
He also said lower stock prices will hurt consumer confidence and offset much of the benefit from February's bounce back in retail sales.
Analysts said the reason Wall Street had such a violent reaction to the good economic news was that investors viewed the strength as dooming any hopes of further interest rate cuts by the Federal Reserve.
Before Friday's report, the Fed had been widely expected to provide a fourth and fifth reduction in rates at its March and May meetings. For more than a year, the stock market has been propelled to record highs on a belief that lower interest rates were in store.
``While the unemployment report was good news for the economy and American workers, the pickup in growth means we have seen the best on inflation and interest rates and that is disappointing to financial markets,'' said Allen Sinai, chief global economist at Lehman Brothers in New York.
President Clinton was quick to highlight the February job rebound, particularly because it pushed him through an important milestone -
But mindful of polls showing an unusually high level of economic anxiety despite the low unemployment rate, the president said, ``Even as we celebrate the creation of 8.4 million jobs, we must remember that much more must be done to ensure that our economy is working for all of our working families.''
Treasury Secretary Robert Rubin, Labor Secretary Robert Reich and other top economic advisers said the February report confirmed the administration's belief that the weakness that gripped the economy for much of 1995 would end this year.
Republicans noted that the Clinton gains may look impressive compared to George Bush's but not when compared with Ronald Reagan's.
Sen. Connie Mack, R-Fla., chairman of the congressional Joint Economic Committee, said that average job gains of 146,000 over the past 12 months compared with average gains of 250,000 per month from 1983 through the end of Reagan's presidency.
``Although the president seems to think that we are enjoying the healthiest economy in three decades, the American people know better,'' Mack said.
Jerry Jasinowski, president of the National Association of Manufacturers, noted that, even with a gain of 26,000 manufacturing jobs in February, employment in this sector remained 267,000 below its peak of the current recovery, set last March.
``The numbers are to some extent a short-term rebound after unusually severe January weather,'' he said. ``We have sidestepped the danger of a recession. Nonetheless, we are not out of the woods yet.''
Staff writer Mag Poff contributed to this story.
LENGTH: Medium: 86 lines ILLUSTRATION: GRAPHIC: Chart by AP: Employed in America. 2. Chart by KRT:by CNBThis week's Dow. color.