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To: Bobby Yellin who wrote (12180)	5/26/1998 12:04:00 PM
From: Giraffe	Read Replies (1) \| Respond to of 116832

U.S. job growth still above trend--S.F. Fed report By Jose Paulo Vicente NEW YORK, May 26 (Reuters) - U.S. employment growth slowed in the first quarter of the year from ''excessive'' rates seen in late 1997, but the overall job expansion rate remains above levels perceived as non-inflationary, a top official at the Federal Reserve Bank of San Francisco said in a report. ''Atypical seasonal patterns boosted the monthly employment figures for January and February and then created a dip in March employment,'' Jack Beebe, director of research at the San Francisco Fed, wrote in a monthly economic letter. ''Smoothing these monthly data and adding April gives us a more reliable reading, suggesting that employment growth has slowed in recent months from excessive rates of late last year. Still employment growth probably is above trend,'' he said. Beebe's report was published in the regional Fed's site on the Internet's World Wide Web (http://www.frbsf.org). The April employment report showed the U.S. jobless rate dropped dramatically to 4.3 percent against an already low 4.7 percent previously. The number two at the San Francisco Fed said that while it was risky to draw conclusions from one month's data, he expected the unemployment rate to remain low over the coming months. Beebe said expectations of low joblessness were based on his assumption that the U.S. economy will continue to chug along at a robust pace throughout the year. The Fed official said he saw overall growth for real Gross Domestic Product (GDP) slowing to around 2.5 percent in 1998 by the fourth quarter, ''a forecast for 1998 that is higher than our earlier estimates.'' Beebe said strong consumer spending and continued corporate investment in technology were expected to bolster economic growth and mitigate the drag from an ongoing financial crisis in East Asia on U.S. net exports. ''We have been estimating that Asian recessions may reduce our GDP growth in 1998 by one-half to one percentage point. This remains a fairly good estimate of what might happen as the year unfolds,'' the regional Fed director of research said. Beebe cited record high consumer sentiment, strong real income gains -- helped in part by falling prices of goods and energy -- and the wealth effect from the stock market as the main factors boosting U.S. consumer spending. Beebe said there was ''no sign yet of a slowdown'' in consumer spending. Commenting on corporate investments, the regional Fed official said money spent on processing equipment rose shaprly in the first quarter of 1998, following a relatively flat fourth quarter. He said that component of investment, which represents slightly under 5.0 percent of real GDP, contributed almost 0.7 percentage point to the 3.6 percent GDP growth rate seen in the last four quarters, or roughly 20 percent of the expansion. ''Technology investment continues to be one of the brightest spots in the economy, along with strong consumer spending,'' Beebe said. Beebe said, however, he did not detect any major inflationary threats on the economic horizon at this point. He said a strong value of the dollar against other major currencies, low energy price, falling prices of computers, strong productivity increases, and declining inflation expectations ''will help offset rising wage inflation'' in 1998. The Fed official said the core Consumer Price Index (CPI), which excludes the volatile food and energy items, was expected to decelarate slightly in 1998 to around 2.0 percent. Core CPI for 1997 was 2.1 percent. Turning to U.S. asset markets, Beebe said the U.S. stock market remains at a ''very high'' level relative to either reported or operating corporate earnings. ''Equities are being priced as if they contain little downside risk, and ... investors would be well-served to pay closer attention to historical relationships in profits relative to the economy and in the risk premium in equities,'' he said.