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Unemployment Matches 14-Year Low; No New Inflation Fears

January 6, 1989

Undated (AP) _ The jobless rate fell back to its 14-year low of 5.3 percent in December but wages were flat, the government said Friday in a report that showed non- inflationary economic growth is continuing.

The stock and bond markets, which have been nervous about strong economic growth, rose in spite of the gains scored by working America as the Reagan presidency drew to a close.

The Dow Jones average of 30 industrial stocks rose 3.75 points to 2,194.29, its highest point since the October 1987 stock market crash. Bond prices posted healthy gains. The dollar also rose.

Ordinarily a drop in the jobless rate scares the bond market because it raises concerns that the economy is overheating, causing inflation that undermines the value of fixed-income investments.

Inflationary pressures in turn could prompt the Federal Reserve to tighten credit by boosting interest rates, something that hurts both stocks and bonds.

But analysts said the employment gains were expected, and they noted that average wages remained flat at $9.45 an hour for a third month. That eased inflation concerns.

The jobless rate averaged 5.5 percent for all of 1988, down from 6.2 percent in 1987, the Labor Department said.

″That gives some support to the notion that we have a strong economy but it hasn’t set off a new inflationary spiral yet,″ said Carol Stone, an economist with Nomura Securities International Inc.

December’s civilian unemployment rate was down 0.1 percentage point from November, hitting 5.3 percent for the third time in 1988, the lowest level since the 5.1 percent of May 1974.

Service-producing industries led in the creation of 279,000 new jobs last month, bringing to nearly 3.8 million the number of jobs created during the year, the most since 1984′s total of 3.95 million, the department said.

Economists said inflation remains a threat.

″It shows that the economy has not shifted to a lower gear,″ said economist Roger Brimmer of Data Resources Inc., a Lexington, Mass., forecasting service. ″With the economy continuing to operate at these levels and continuing to grow as rapidly as it is, inflation is going to keep creeping up.″

″The economy continues to grow robustly and wage rates are not accelerating very much right now,″ said Washington-based economist Michael K. Evans. ″But I still think there is higher inflation ahead, perhaps in spite of this report and not because of it. We could get a big jolt in inflation in January.″

When Reagan took office in January 1981, unemployment was 7.5 percent. It rose to 10.8 percent late in the 1981-82 recession, the highest level in four decades, before beginning to decline.

The number of workers employed part-time because they cannot find full-time work also was unchanged over the past year, remaining at 5.3 million.

An alternate jobless rate that includes in the labor force the 1.7 million members of the armed forces stationed in the United States was also 5.3 percent last month, unchanged from November.

The dollar rose sharply for a third straight day as traders interpreted comments by a West German official as being bullish for the U.S. currency.

Helmut Schlesinger, vice president of the Bundesbank, said the West German central bank had not intervened recently to influence exchange rates. Dealers took that to mean the bank would not try to limit the dollar’s rise. But the German central bank and the Federal Reserve did sell dollars on Friday.

The dollar’s rise helped support bond prices.

The Treasury’s closely watched 30-year bond gained 21-32 point, or about $6.50 for every $1,000 in face value. Its yield, which moves in the opposite direction from its price, fell to 9.03 percent from 9.08 percent on Thursday.

1835EST

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