Jobless Rate Slips to 4.8%, a 23-Year Low

WASHINGTON — A burst of hiring in health services, hotels and construction in May helped drive down the unemployment rate to 4.8%, the lowest level in more than 23 years, the Labor Department reported Friday.

The combination of solid job growth and negligible inflation is a welcome condition for both workers and businesses, economists agreed.

And the stock market, usually spooked by strong job reports, seemed assured that inflation isn’t an immediate threat. The Dow Jones industrial average jumped 130.49 points to hit a new record of 7,435.78.

Although the number of new jobs rose a healthy 138,000 in May, the figure was less than the average monthly gain of 229,000 jobs so far this year. For investors, it was a sign that the good times are continuing, without threatening a resurgence of inflation.

“It would be ideal if we could just stay at this level and see employment reports like this far into the future,” said Dean Baker of the Economic Policy Institute, a liberal Washington think tank.

News of the lowest jobless rate since November 1973--the figure was an identical 4.8%--was welcomed enthusiastically by both Democrats and Republicans.

White House Press Secretary Mike McCurry called it “stunningly good news.”

On Capitol Hill, Rep. H. James Saxton (R-N.J.), chairman of Congress’ Joint Economic Committee, said “the good news is that the economy is growing at a healthy pace, unemployment remains low and inflation is flagging.”

There is no real evidence that current or future inflation is a danger, Saxton said.

The most intriguing question is how the Federal Reserve Board will respond to yet another month of good news. The economy has been expanding since March 1991.

A long-held belief in 6% as a “natural rate of unemployment” has been shattered, because the jobless rate has fallen steadily far below that level without triggering serious inflation. The consumer price index, the key measure of retail inflation, has climbed 2.5% in the year ended in April and shows no signs of accelerating.

The share of the American population at work hit a new record in May--63.9% of all those over age 16.

When times are good, more people flood into the labor force, including those who might have been discouraged but now believe that it is easier to get work.

“For example, a retired person may have no interest in finding a job until he or she sees a help-wanted sign in a local store and realizes that conveniently located employment can be readily obtained,” Katherine Abraham, commissioner of labor statistics, told the Joint Economic Committee hearing.

A surge of new workers into the labor force--2.6 million since May of last year--has filled job vacancies while keeping wages from rising sharply. There is still a large group of potential workers, more than 66 million persons over the age of 16, who are potentially available to be drawn into the labor market, Abraham said.

Average hourly earnings rose 4 cents in May and have increased 3.8% during the last year, the Labor Department reported Friday. However, overall employment costs are rising more slowly because of savings to business from a slowdown in health insurance and other benefit expenses.

“The bottom line is that sustained cyclical expansion continues to generate economic and employment growth,” Saxton said.

However, the Federal Reserve is poised to raise interest rates at any sign that prices are accelerating.

“I would keep my six-gun in the holster, but the Fed has a predilection for the quick draw,” said Martin Regalia, chief economist at the U.S. Chamber of Commerce.

The job gain of 138,000 last month was a comparative lull after an extraordinary gain of 323,000 during April. The figure for April, when the unemployment rate was 4.9%, was revised sharply upward from the original estimate of 142,000. The May figure marked the fourth consecutive drop in the unemployment rate.

May’s new jobs included gains of 26,000 in health services and 13,000 for hotels and motels. Good weather helped boost construction employment by 23,000, a healthy rebound after a drop of 10,000 in April.

There were 129.6 million Americans working last month and 6.5 million unemployed.

The benefits of the booming jobs market were not shared equally among different segments of the population. The jobless rates in May among major population groups: women, 4.5%, up from 4.4%; men, 3.8%, down from 4.2%; whites, 4%, down from 4.2%; blacks, 10.3%, up from 9.8%; and Latinos, 7.4%, down from 8.1%.

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U.S. Unemployment Rate

With unemployment at its lowest rate in a generation, Americans are benefiting from the second-longest peacetime economic expansion in U.S. history.

Nov. ‘73: 4.8%

Dec, ‘83: 10.8%

May ‘97: 4.8%

* Source: Labor Department; Associated Press