ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Saturday, July 6, 1996 TAG: 9607080049
SECTION: BUSINESS PAGE: A-4 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
The nation's unemployment rate fell to a six-year low as a surprisingly strong economy created thousands of new jobs in June. President Clinton was all smiles; but investors, fearing higher interest rates, gave the stock market its worst beating in four months.
The Labor Department reported the jobless rate at 5.3 percent, down from 5.6 percent in May, with 239,000 new jobs created. Hiring was exceptionally strong at restaurants and bars, and analysts said preparations for the summer Olympics in Atlanta helped boost the total.
But Friday's report sent the Dow Jones industrial average down 114 points or 2.01 percent, the seventh biggest point drop in history. Bonds were also pummeled as falling demand pushed the yield on Treasury's 30-year bond up to 7.18 percent at closing from 6.93 percent on Wednesday. The Dow's decline was the biggest since a 171-point drop after the February job gain was released.
The Dow was led lower by J.P. Morgan, which fell 27/8 to 841/8. Citicorp shares dropped 27/8 to 797/8; Fannie Mae fell 15/8 to 31; and CIGNA Corp., an insurance company, shed 41/8 points to 115.
Analysts said the larger-than-expected job gains in June, plus upward revisions to April and May job growth, depicted an economy exceeding the rate set by the Federal Reserve.
While Fed policy-makers passed up the chance to raise interest rates this week, chances of a rate increase Aug. 20, if not before, were put at a virtual certainty,
``This report shows the economy rising well above the speed limit the Fed is comfortable with, and we are starting to see signs of inflationary pressures in the labor market,'' said Robert Dederick, chief economic consultant at Northern Trust Co. in Chicago. ``The real issue now is whether the Fed will wait as long as the next meeting.''
Economists noted that average hourly earnings, a key indicator of wage pressures, jumped 0.8 percent, the biggest monthly increase on record.
Labor Secretary Robert Reich rejected worries among economists that the big rise in earnings, which reflected a 9-cent-an-hour increase, was an early indicator of rising inflation.
``Hourly workers have been waiting for some time to participate in this buoyant economy. If hourly wages have increased 9 cents, that is great news,'' Reich said.
Private economists, however, said the earnings increase, the biggest since the government began the series in 1965, would raise alarm bells at the Fed.
``This report shows the Fed should have raised interest rates this week. The danger is that they will now be behind the curve on inflation and will have to slam on the brakes even harder,'' said Allen Sinai, chief global economist at Lehman Brothers in New York.
The gain of 239,000 jobs last month followed increases of 365,000 in May and 191,000 in April. For June, the strength was concentrated in the service sector with retail stores adding 75,000 jobs, almost half of them at restaurants and bars.
The 5.3 percent jobless rate marked the lowest unemployment level for this recovery, which is now in its sixth year. The rate fell to 5.2 percent in June 1990, the peak month in the long recovery that began following the 1981-82 recession.
LENGTH: Medium: 66 lines ILLUSTRATION: GRAPHIC: Chart. color.by CNB