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Unemployment Rate Plunges to Seven-Year Low

September 6, 1996

WASHINGTON (AP) _ The nation’s unemployment rate plunged to a seven-year low of 5.1 percent in August as more Americans _ particularly those younger than 25 and older than 54 _ found jobs, the government said today.

The unexpectedly steep drop, from 5.4 percent in July, was sure to rile financial markets, which have been watching anxiously for signs of an overly strong economy that could cause the Federal Reserve to boost interest rates.

The Fed has ``got to react to this. The economy is expanding quickly and it’s at capacity. Unless they act now, they’re going to have a big problem,″ said economist Mark Zandi of Regional Financial Associates in West Chester, Pa.

Interest rates jumped on the Treasury bond market on release of the report but immediately fell back.

August’s jobless rate, according to the Labor Department, represents the lowest since early in the Bush administration, March 1989, when it reached 5 percent. And it’s well below the range that most economists identify as the rate the economy can maintain without inflationary pressures developing.

Meanwhile, the department reported that a survey of employers showed a gain of 250,000 jobs in August, following an increase of 228,000 in July, revised up from the 193,000 reported preliminarily last month.

Before today’s report, economists had been split over whether the Federal Reserve would nudge rates higher before the Nov. 5 election or wait to see if economic momentum slows a bit. Zandi said the report makes it very likely that monetary policy-makers will act by their next scheduled meeting on Sept. 24.

The Fed _ and financial markets _ probably will be concerned by a 6-cent increase in the average hourly earnings of non-farm, non-supervisory workers to $11.87. That followed a 2-cent drop in July and a record 10-cent gain in June.

However, the Labor Department noted several factors that made the job market look stronger than it actually was in August. The decline in the jobless rate among those 20 to 24, from 9.7 percent to 8.3 percent, was partly explained by the fact that the government conducted the employment survey later in August than usual, when many college students had quit looking for work and were preparing to return to school.

The rate among workers 55 and older declined from 3.8 percent to 3.1 percent.

The 200,000-job increase found in the survey of employers’ payrolls was about 50,000 stronger than economists anticipated. Much of the strength, 77,000, came in government and most of that came in education. Officials acknowledged the timing of the survey added to added to the strength of the increase.

Manufacturing jobs rose by 25,000 after declining in June and July, reflecting the end of summer shutdowns at auto plants. Payrolls grew less strongly in construction, 6,000 jobs, and retail trade, 21,000, than in recent months, but more strongly than usual, 21,000, in finance, insurance and real estate.

While the strong job market has been giving bond traders fits, it has pleased President Clinton, who is increasing his lead over Republican challenger Bob Dole, according to recent polls.

The administration argues that job growth during Clinton’s term has been nearly double the 129,000 jobs created monthly during George Bush’s four years in office.

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