Dip in Jobless Rate to 5.2% Renews Fears of Inflation

In a report that casts doubt on recent signs of an economic slowdown, the Labor Department announced Friday that unemployment declined by 0.1 percentage point in October to a 14-year low of 5.2%.

It said that 330,000 new jobs were created, many in manufacturing industries.

The October employment record, the last major economic report before Tuesday’s election, jolted economic analysts who are fearful that the economy is in danger of overheating.

But it was seen as a boon to Republican presidential nominee George Bush, whose campaign expects voters to take the news of more jobs and lower unemployment at face value.

“The future is bright and it’s getting brighter,” President Reagan said of the employment report as he was leaving the White House to make a campaign speech for the vice president. “Nothing’s going to stop us now.”

“There goes the incredible job-creating machine again,” said one analyst, Allen Sinai of the Boston Co., of the nation’s economy. “For the economy, this is terrific news. . . . But for the financial markets, it’s too strong, and the danger of higher wage inflation seems real.”

Of the new jobs created, 99,000 were in manufacturing, the largest such monthly increase in four years and a complete reversal of earlier declines in factory jobs over the summer.

Market analysts who had focused on the relatively sluggish 2.2% annual growth in the third quarter of the year had expected unemployment to remain at 5.3% and new payroll jobs to be below average.

But instead, new jobs surged well above the 300,000 level for the month and the job count for September was revised upward from 250,000 to 304,000.

With an already tight job market apparently getting tighter, analysts said that the economy, expanding for almost seven years, may be growing too fast and that the Federal Reserve will have to raise interest rates to curb inflation.

After the report’s release, short-term interest rates moved higher and stocks, after a seesaw day, wound up with a 24.54-point decline in the Dow Jones industrial average.

Sinai warned that the upward trend in hourly wages--rising at an annual rate of 5.2% over the last three months, compared to 2.6% during 1987, could prompt the Fed to act before year’s end. “There’s no doubt in my mind we have ratcheted up significantly on inflation.”

Steven Hess, senior economist at First Interstate Bancorp in Los Angeles, said the earlier signs of a slowdown were taken too seriously.

“Now we are looking to strong growth in the fourth quarter and see the labor market tightening, manufacturing nearing full capacity and the Fed without any leeway to loosen,” he said.

One positive side of the equation is that the strong rebound in manufacturing jobs points to a continued strong flow of export orders. “We expect continued improvement in the trade deficit,” Hess said.

Analyst Robert F. Wescott of the Alphametrics forecasting firm in Philadelphia called the bounce-back in manufacturing jobs “very encouraging.”

“These manufacturing jobs reflect demand on the export side, and I think we’ll continue to see strong export growth over the next year or two.”

Wescott said he saw no reason that the expansion, already the longest peacetime growth period on record, “couldn’t go on for a few more years.”

The 5.2% unemployment rate for October covers both civilians and members of the armed forces living in the United States. Another measure that includes only civilians also dropped 0.1 point in October to 5.3%. Unemployment has not been lower since May, 1974.

Civilian unemployment in California was reported at 5% in October, down from 5.2% in September and down substantially from 5.8% a year ago. Nationwide, civilian unemployment in October, 1987, was 6%.

Among various population groups, unemployment has fallen steadily across the board over the last two years, though unemployment continues markedly higher for minorities and teen-agers.

October unemployment among these subgroups was: adult men, 4.6%, up from 4.5% in September; adult women, 4.7%, down from 4.8%; whites, 4.6%, down from 4.8%; blacks, 11%, up from 10.8%; Latinos, 7.7%, up from 7.4%; teen-agers, 14.9%, down from 15.7%, and black teen-agers, 26.5%, down from 32.2%.