Unemployment Rate Drops Below 4% for First Time Since 1970;
50-Basis-Point Hike Still Expected
By David A. Gaffen
5/5/00 8:54 AM ET The unemployment rate dropped below the 4% level for the
first time since January 1970 to 3.9%, the Labor Department said in this
morning's release of the employment report A total of 340,000 people were
added to the payrolls in the month of April. Average hourly earnings
The drop in the unemployment rate supports the growing sentiment that the
Federal Reserve will raise interest rates by 50 basis points at its May 16
meeting, rather than the now usual 25-point hike. Bonds and stock futures
dropped on the news, and while Nasdaq futures quickly recovered, the S&P
futures were recently in negative territory.
Nonfarm payrolls rose 340,000 in the month of April, less than the expected
358,000 estimate as forecast by Reuters, and after an upward revision in
March to 458,000 from 416,000.
Economists were calling for a decline in the unemployment rate to 4.0%,
after March's unrevised figure of 4.1%.
The Federal Reserve has been worried that the decline in the pool of
available workers will result in a strong rise in wage inflation, as employers
scramble to keep workers at their respective companies. Wage pressures,
after remaining largely in check during the last couple of years, are
beginning to intensify, evidenced by the recent surge in costs measured in
the Employment Cost Index.
Census workers actually were less important to the overall increase than
expected; excluding census workers, nonfarm payrolls increased 267,000,
the Labor Department said. That was stronger than expected -- many
economists estimated that this month's payroll increase would include
about 100,000 to 150,000 census workers.
Construction workers fell 55,000, while manufacturing jobs increased
11,000. The overall gain in payrolls showed that labor markets remained
extremely tight and job creation continues to be strong. Service-producing
jobs added 380,000, including 107,000 in government workers.
Average hourly earnings rose 6 cents to $13.64, after March's figure was
revised downward to $13.58. On a year-over-year rate, average hourly
earnings rose at a 3.8% rate, compared with 3.7% at this time last year,
and that increase is generally in line with the trend of the last couple years.
The average workweek was 34.6 hours per week, compared with March's
34.5 hours per week and a 34.5 hour per week estimate.