September indicators are mixed Analysts contend current expansion is not done yet; Unemployment up 0.1%; Recent cool period must be compared to torrid spring

THE BALTIMORE SUN

A government jobs report suggested yesterday that the U.S. economy continued to slow down last month, but business analysts said it's too soon to start forecasting the end of the current expansion, now in its sixth year.

September unemployment edged up to 5.2 percent from 5.1 percent in August, and the Labor Department estimated that businesses actually trimmed their payrolls last month, the first time that has happened since winter. Economists had expected employer payrolls to swell by 170,000 jobs in September; instead they shrank by 40,000 jobs.

"The overall message is one that the U.S. economy has slowed substantially," said Lynn Reaser, chief economist for Barnett Banks Inc., based in Jacksonville, Fla.

But beneath that headline lies a web of details suggesting that economic strength is still impressive, that inflation pressures are building and that the Christmas retail season is not yet headed for the dumps. The economy might be cooling, analysts pointed out, but it's cooling from a torrid spring, the second-fastest quarterly expansion this decade.

The payroll figure "certainly was a much weaker value than anybody expected," said Daniel Friel, director of financial and economic analysis for NationsBank Corp. of Charlotte, N.C. "But if you look at the rest of the report, you've got kind of a mixed bag. Five-point-two percent is still a low unemployment rate."

Several pieces of the jobs report indicated economic vigor.

The length of the average work week increased. Average hourly earnings rose 0.5 percent in September compared with August, and 3.5 percent over the past year.

"This suggests an increase in wages," Friel said, and more spending power for holiday buyers.

Also, a telephone survey of households, deemed less reliable than the payroll data but still watched, indicated that 300,000 more people were working in September than in August, not 40,000 fewer.

The August survey had shown an employment drop of 400,000, however.

"As usual, there are these conflicting indicators," said Bill Cheney, chief economist for John Hancock Financial Services in New York. "In a way, that's as it should be. We're looking at moderate growth, and in those circumstances you would expect to have mixed signals all the time."

Wall Street looked mainly at the payroll data, apparently. Investors bid up stocks and bond prices, traders said, because a slowing economy could allow the Federal Reserve to leave the money supply and short-term interest rates untouched for the rest of the year.

A growing economy often ignites inflation, and the Fed, the country's central bank, was widely expected to tighten the money supply and raise short-term interest rates this year to tame price increases. It has not done so yet.

The Dow Jones average of 30 industrial stocks rose 60.01 points yesterday to close at 5,992.86, another new high. Bond prices rose, too, as the yield on the Treasury's main 30-year bond fell from 6.83 percent to 6.74 percent. Bond prices and yields go in opposite directions.

Most analysts had expected yesterday's report to show payroll growth of about 170,000 jobs. Much of its weakness came from the factory sector, where layoffs trimmed 57,000 jobs.

Other recent reports have also shown slower manufacturing, including durable-goods orders and purchasing-manager data.

Pub Date: 10/05/96

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