THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Saturday, July 6, 1996 TAG: 9607060346
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: FROM WIRE REPORTS
DATELINE: WASHINGTON LENGTH: 59 lines
The economy created jobs at a surprisingly fast rate in June, delighting President Clinton but alarming Wall Street, which saw stock and bond prices drop in anticipation of a possible increase in interest rates.
The Labor Department reported Friday that 239,000 new workers were employed last month, reducing the national jobless rate to 5.3 percent, the lowest figure in six years. Initial figures indicated that average hourly wages had risen more in June than in any other month in at least 31 years.
Even as Clinton led election-year cheers for the robust job growth, the Dow Jones industrial average fell nearly 115 points as traders grew fearful of accelerating inflation. Bond prices also slumped, with the benchmark 30-year Treasury bond yield - which moves in the opposite direction - rising to 7.19 percent from Wednesday's close of 6.93 percent.
Economists said Federal Reserve Chairman Alan Greenspan is virtually certain to press for an increase in short-term interest rates - perhaps as early as next week, well in advance of the next regularly scheduled meeting on Aug. 20 of the Federal Open Market Committee, the Fed's policy-making arm.
Such an increase would be aimed at controlling inflation by slowing the growth of the economy. But a rise in interest rates also could stifle activity on the stock market.
Martin Baily, a member of the President's Council of Economic Advisers, clearly signaled Clinton's desire to avoid a new round of interest-rate increases when he said, ``At the moment, in these numbers, we don't see a direct concern about inflation.''
But other economists cited the wage growth figures as adding to concerns about creeping inflation.
The Labor Department reported that average earnings climbed by 9 cents to $11.82 an hour in June. The increase was the largest one-month increase in wages since the government began reporting the statistic 31 years ago.
Economists said an increase of that size was a clear sign that unemployment is now so low that employers are having to fatten pay envelopes to attract and hold their workers - a development that could lead to higher inflation as firms try to pass such higher costs on to their customers by raising prices.
``The good news on inflation is behind us: Price gains are more likely to accelerate,'' said Sung Won Sohn, economist at Norwest Corp., a banking concern in Minneapolis.
However, the Bureau of Labor Statistics sought to play down the figures on rising wages because of the traditional volatility of those statistics. And some analysts suggested that the June leap in earnings may have been affected by the severe winter, which delayed the end of the school year - and the entry of low-wage students into the job market.
Many analysts agreed, however, that the overall performance of the economy is favorable, and likely to remain so through the rest of the year. That would represent good news for Clinton, and could raise questions about GOP contender Bob Dole's intention to propose some sort of tax cut as the centerpiece of his economic program. Tax reductions tend to stimulate economic activity, creating even more inflationary pressure. MEMO: This story was compiled from reports by The Los Angeles Times, The
Washington Post and The New York Times. by CNB