South-Western College Publishing - Economics  
U-Rate Down But So Is Job Growth
Subject Unemployment Rate
Topic Employment, Unemployment, and Inflation
Key Words Employment, Unemployment, Inflation, Growth, Labor Market
News Story

The Bureau of Labor Statistics reported that the nation's unemployment rate fell to 4.2 percent in May, the lowest monthly level in 29 years. Job growth in May slowed with the U.S. economy generating only 11,000 new jobs compared with the 200,000 or more that economists had been expecting. The decline in the unemployment rate supports the belief that the economy is still growing, while the job creation data lend support to those who believe that the economy is slowing.

The manufacturing sector continued to lose jobs. Manufacturing employment was down by 45,000 in May. The service sector added 71,000 jobs, somewhat fewer than the 125,000 jobs it has averaged per month over the last year.

The employment data provide further evidence of an increasingly tight labor market. Black unemployment dropped to 7.5 percent, its lowest level since data collection by race began. Teenage unemployment and female unemployment rates were also lower.

Tight labor markets also meant larger pay raises for U.S. workers. Average hourly wages of nonsupervisory workers rose 0.4 percent in May, a larger increase than was forecast. On an annual basis May wages were up 3.6 percent, a decrease from the 4.4 percent rate recorded in April.

The May employment data had been anxiously anticipated because of the impact it might have on the Federal Reserve's deliberations at the end of June. If May's data provided evidence that signaled increased inflation, this would certainly lead the Fed to increase rates. Many believe that the May data is inconclusive and therefore does not provide any clue as to what the Fed will do.

(Updated July 1, 1999)

Questions
1. Using a labor demand/labor supply diagram, show the impact of an increase in demand on wage rates and the level of employment.
2. How do changes in the labor market affect the prices that producers charge?
3. When unemployment goes down it is usually described in terms of a tightening of the labor market. Explain.
Source George Hager, "Unemployment Rate Falls," The Washington Post, June 5, 1999.

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