Jobless Rate Drops Unexpectedly

WASHINGTON —  The nation’s unemployment rate fell unexpectedly to 5.7% in August as health-care companies, building contractors, temporary-help agencies and the government expanded their payrolls, the Labor Department reported Friday.

The decline from July’s 5.9% rate and the net increase of 39,000 jobs during the month heartened investors, who had been expecting a jump in joblessness.

But the latest numbers suggested anew that the economy is headed for another “jobless” recovery like that of the early 1990s, when it took more than two years for employment to improve after the recession was over.

“There’s nothing more important to the economy than job growth, and August was not very encouraging on that front,” Los Angeles economist Donald H. Straszheim said. “The blunt reality is we need faster job growth.”

The most immediate effect of the August numbers may be to dampen fears of renewed recession. Analysts have been confused by recent statistics that show U.S. manufacturing stumbling after a brief recovery even as American consumers continue buying. But most agree the economy can weather most difficulties as long as employment holds up.

The Federal Reserve probably will react to the new figures by leaving its signal-sending, short-term interest rate at a low 1.75%, rather than cutting the rate further as some economists and investment managers have asked. Fed Chairman Alan Greenspan may signal the central bank’s intentions when he testifies before Congress Thursday.

Stocks rallied Friday on news of the unexpected drop in joblessness. The Dow Jones industrial aver- age rose 143.50 points, or 1.7%, to close at 8,427.20, while the technology-laden Nasdaq composite index jumped 44.30, or 3.5%, to 1,295.30.

Still, the major market measures lost ground for the week, and stocks appear headed for a third straight year of declines, their longest losing streak since the three-year period ended in 1941.

Key bond prices fell, raising their market interest rates from near four-decade lows earlier in the week.

Economic optimists found more to crow about in the new numbers than just the decline in the jobless rate.

Besides the August job gains, the Labor Department revised its July figures to show a 67,000-position jump in employment, rather than its previous estimate of just 6,000.

Service sector employment in August rose by 100,000, aided by the addition of 26,000 health-care workers and 51,000 temporary workers. The temporary hiring represented a turnaround from July’s loss of 30,000 jobs and was part of a comeback for an industry that bore much of the brunt of last year’s recession.

The construction industry added 34,000 jobs.

In addition, analysts pointed to a small increase in the average work week for production and nonsupervisory workers--who account for more than two-thirds of the nation’s 140 workers--as a sign that the economy is on the mend. They found further evidence in a 4-cent, or 0.6%, bump in average hourly earnings.

“It’s weak, but it’s healing,” said Steven Wieting, an economist with Salomon Smith Barney in New York.

The new jobs numbers can only be considered good news against the bleak backdrop of what had been expected. Before Friday’s report, most economists had predicted the unemployment rate would rise to 6% in August and 6.5% later this year.

The economy is thought to have emerged from recession last fall and has been growing for three straight quarters. However, companies have remained exceedingly cautious about resuming hiring.

U.S. employers hired more than 200,000 new workers a month in the late ‘90s and in the first years of the new decade but have been taking on an average of 25,000 a month for the last six months. Analysts say the country needs to add 100,000 to 150,000 a month to prevent rising unemployment.

To the surprise of many, U.S. manufacturers, which had been thought to be on the mend, shed an additional 68,000 jobs in August. Overall, the number of private-sector workers slipped by 2,000. The monthly jobs total rose only because governments at all levels added 41,000 workers, many of them airport security officers.

Virtually all of the decline in the August unemployment rate was accounted for by a sharp drop in joblessness among adult women, whose unemployment rate fell to 4.9% from 5.2% in July. The adult male rate was unchanged at 5.2%.

Among blacks, unemployment fell to 9.6% in August from 9.9% in July. Among Latinos, it slipped to 7.5% from 7.6%. The jobless rate among whites declined to 5.1% from 5.3%.