Some Good News on Jobs

But inflation, interest-rate and stock-price figures offer no cheer

The news broke like a shaft of sunshine through an otherwise stormy week for the economy. After seeming to hover around 7% for eight months, the nation's unemployment rate in December fell to a seasonally adjusted 6.4%.

That was the lowest level since October 1974. It equaled a goal that the Carter Administration had set, then quietly abandoned, for its first year in office. Indeed, it was a shade lower than the rate of unemployment that many economists had predicted for the close of 1978.

Why the big drop? One reason, according to Department of Labor officials who prepared the report, is sim ply that the economy grew rapidly in 1977. Some 4.1 million people were added to civilian payrolls during the year, the largest number of Americans to find jobs in any year since World War II. But department officials also explained that the December drop in unemployment is not as big as it looks. Reason: the Government recalculated unemployment figures for all of 1977, using new data to adjust for seasonal fluctuations. The department now estimates that the jobless rate hit a high of 7.6% last February--not 7.5%, as it believed at the time --and then declined gradually through the summer and fall. For example, the department reported the November rate to be 6.9%, but now thinks it was only 6.7%.

Some outside economists doubt that the Government's calculations are right even now. Otto Eckstein, a member of TIME'S Board of Economists, questions whether the December jobless rate was really only 6.4% and believes it was "physically impossible" for 1.3 million new jobs to be created in November and December, which is what the Administration says happened. But even Eckstein concedes that unemployment is indeed coming down, and President Carter naturally hailed the news with delight. He cautioned, though, that the nation still needs the tax cut of $25 billion a year that he will propose to keep economic expansion rolling into next year.

Other developments indicate that Carter will have a tough job satisfying the nation when he lays out his economic policy this week. The President in rapid succession will deliver a State of the Union speech focused on economics, send an economics message to Congress, detail his tax-cut program and put the finishing touches on the federal budget for fiscal 1979. Both liberal and conservative economists agree that the main weakness in the President's program so far is his failure to develop an effective anti-inflation policy. As if to underscore the point, the Government reported that wholesale prices of finished goods climbed .7% in December, equal to an annual rate of 8.7%. That was nearly double the November increase. Food prices alone leaped 1.5%.

Treasury Secretary W. Michael Blumenthal announced that the Administration will unveil a new anti-inflation plan this week. It will apparently consist of a set of "principles" that the Administration will urge labor and business to follow in boosting wages and prices, with no numbers indicating how much is too much. Says one top Government economist: "I don't know how the hell it is going to work."

The Government's decision two weeks ago to intervene in foreign currency markets to keep the value of the dollar from sinking too fast has halted the rapid decline of the greenback, at least temporarily. But some foreign moneymen think that the U.S. is being too timid in buying up unwanted dollars. Meanwhile, the effort to bolster the buck is having unfortunate side effects. In order to make U.S. currency more attractive to foreign investors, the Federal Reserve Board has raised American interest rates another notch.* It boosted the discount rate, the charge imposed on Federal Reserve loans to member banks, by a half-point, to 6 1/2%, and raised its target for the "Fed funds" rate, which banks charge one another on overnight loans, from 6 1/2% to about 6 3/4%. Other rates moved up in sympathy; the prime rate on banks' loans to their best business borrowers rose from 7 3/4% to 8%.

All that may help the dollar, but it could hurt the U.S. economy by making borrowing costs high for much-needed expansion by business. In fact, the Commerce Department predicts that, discounted for inflation, capital spending will increase only 4.5% in 1978, compared with 8% last year. The 1978 figure will thus fall far short of Carter's goal of 9% to 10%.

The dollar has primarily been depressed by the U.S. trade deficit, which in turn largely reflects the high cost of imported oil. Carter in a press conference last week argued that until Congress stops fiddling and passes his energy program --which is designed to promote conservation and cut imports--the dollar will continue under pressure, and interest rates will stay high.

The impact of the dollar crisis and rising interest rates on the stock market has been devastating. The Dow Jones industrial average lost 55 points in the first seven days of trading this year; last week it closed at a 33-month low of 775.73. Many Wall Streeters believe the market is now oversold and some rebound in stock prices can be expected. But if the market is to recover over the long run, the Administration must find a way to restore investor confidence. Warns Mark Collins, vice president of the investment bank of Kidder, Peabody: "The stock market is saying there is no policy in this Government."

* Arthur Burns, who was replaced last month as chairman of the Federal Reserve Board by Carter-Appointee G. William Miller, announced last week that he would not serve the remaining six years of his term as a board member but would retire on March 31.

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