Unemployment edged downward to 7 1/2 percent of the work force last month while producer prices climbed by only 0.6 percent, the slowest rate for six months, the government said yesterday. But economists believe the improvements are likely to be short-lived.
Soaring interest rates now threaten to choke off the economy's recovery, throwing people out of work again, and food and energy price rises already in the pipeline will bump up inflation in the coming months.
Continued high inflation is a major factor pushing up interest rates. Producer prices rose by 0.6 percent in November, equal to an annualized rise of 7.9 percent, the Labor Department reported yesterday. This is less than the 0.8 percent increase in October but a Labor Department economist said "there's still a lot of inflationary pressure . . . and this is worrisome."
He said all of the November price improvement was due to lower prices for autos and trucks. "The prices of intermediate goods such as steel, chemicals and plastics are rising again" while energy costs soared by 1.3 percent last month, the economist said.
The increased cost of intermediate goods will push up wholesale prices later on and eventually feed through into shop prices, he noted. Consumer prices rose by 1 percent in September and October.
Gas prices jumped 1.7 percent in November after falling for five months in a row, the Labor Department release showed. Energy prices are expected to rise sharply over the next few months from the double impact of decontrol of oil and gas prices and higher prices for crude oil.
Consumer food prices rose 1/2 percent for the second month running. This is well below the large increases in the summer. Prices for beef and veal dropped as farmers slaughtered cattle, rather than feed them at present high grain prices. The long-term grain shortage because of the drought last summer is expected to force up food prices next year.
Prices for raw material other than food rose by 1.8 percent last month, the fifth consecutive monthly rise. Overall raw material prices went up by 1.1 percent, about the same as in October.
While unemployment drifted down by 0.1 percent to 7 1/2 percent in November, the number of people working rose by 220,000 to 97.4 million, the Labor Department said in a separate release. There has been little change in either employment or unemployment totals since August, according to the release, although present levels are better than during the worst of the recession.
Unemployment was expected to stay flat next year. But economists now believe that spiralling interest rates could send the economy into another recession. This almost certainly would push unemployment back up again. It peaked at 7.8 percent last July, and is still 2 full percentage points above 1979's rates.
In the year ending in November, earnings have risen at close to a 10 percent rate, Bureau of Labor Statistics Commissioner Janet Norwood told the Joint Economic Committee yesterday. Inflation has eaten away all of the benefit, however, so that real earnings fell during the year, Norwood said.
She warned that "the present recovery will probably not bring about the sharp gains in productivity observed in prior periods of more vigorous economic expansion." Slow productivity growth means that there cannot be significant gains in real income.