According to the Labor Department, unemployment dropped to exactly 6 per cent last month from 6.4 per cent in April - suggesting more of the vigorous economic growth that has sent tremors through the bond market since the start of the year. The biggest improvement was in California, where a plunge to 8.3 per cent from 9.6 per cent indicates the state may finally be pulling out of recession.
But other parts of the report sent a very different message. Despite the start of the summer hiring season, only 191,000 jobs were added outside the farm sector in May, well below the 250,000 to 300,000 predicted on Wall Street. Given that 70,000 of the new jobs were those of Teamster Union members returning to work after a strike, the growth was smaller still, less than a third of the 385,000 jobs generated in April.
Almost the entire gain was in the service sector. Manufacturing jobs actually dropped by 2,000 in May, while the average factory week declined to 42.1 hours worked from 42.2 hours. The April working week had been the highest since the war.
The mixed signals sent stock and bond prices yesterday in all directions. The benchmark 30-year bond was more than three-quarters of a point up at the close.
Speaking in Italy yesterday, President Clinton hailed the news as vindication of his economic policies. Nonetheless, the markets are still deeply nervous about inflation and the risk of a further boost to interest rates by the Federal Reserve.
View from City Road, page 14Reuse content