U.S. JOBS DATA SAID TO RULE OUT FED TIGHTENING

  A steep drop in goods-producing jobs
  detracted from U.S. March non-farm payroll employment and makes
  it unlikely that the Federal Reserve will tighten monetary
  policy to defend the dollar, economists said.
      U.S. March non-farm payroll employment rose 164,000, less
  than the gain of 220,000 to 290,000 the financial markets
  expected. Manufacturing employment fell 25,000, compared with
  February's 50,000 gain, while March construction employment
  dropped 45,000 after being unchanged in February.
      "The momentum of industrial activity is tapering off as we
  end the first quarter," said Stephen Roach of Morgan Stanley
  and Co Inc. "This sets the stage for more sluggish growth in
  the second and third quarters."
      "The Fed will view this as a caution flag on the economy,"
  he said. "They will not ease as long the dollar is weak, but
  clearly they can't tighten."
      David Wyss of Data Resources Inc said that the downward
  revision in February non-farm payroll employment to 236,000
  from 337,000 means that employment gains in the first quarter
  were weaker than expected.
      While Wyss left his first-quarter forecast of real U.S.
  gross national product growth at 3.5 pct, he said the March
  jobs data suggested a downward revision in his second-quarter
  growth forecast to 2.5 pct from 2.8 pct.
      Bill Sullivan of Dean Witter Reynolds Inc said the average
  monthly gain in non-farm jobs in the first quarter was only
  237,000, compared with 254,000 in the fourth quarter of 1986.
      "There's momentum in first quarter labor force activity, 
  but less than assumed," he said. "Gains in goods-producing jobs
  were subdued at best. This rules out any possibilty of the Fed
  tightening for exchange-related purposes."
      In March, the average workweek fell back to its January
  level of 34.8 hours from 35.0 hours in February. Manufacturing
  hours also fell back to their January level, totalling 40.9
  hours in March compared with 41.2 hours in February.
      The Commerce Department noted that loss of manufacturing
  jobs in March was concentrated in automobile, electrical and 
  electronic manufacturing.
      Robert Brusca of Nikko Securities International said that a
  13,000 decline in auto manufacturing employment accounted for
  nearly half of the total drop in manufacturing jobs.
      Economists said that a build-up in auto inventories
  resulting from a steep drop in sales has finally caught up with
  the labor force and may point to slower growth ahead.
      Most expect an increase in inventories of as much as five
  pct to offset a steep four to five pct drop in final sales in
  the first-quarter GNP accounts.
      Roach said he expects first quarter U.S. GNP to rise two
  pct, to be followed by a gain of 1.0-1.5 pct at best in the
  second and third quarters. He said the March drop in industrial
  activity "is a reasonable response in light of the inordinate
  contribution inventory accumulation made to GNP."
      Economists said the employment data also suggest weak gains
  in industrial production and personal income for March.
  They expect only marginal gains, if not small declines, for
  these indicators, compared with a February increases of 0.5 pct
  in industrial production and 0.9 pct in personal income.
      Steve Slifer of Lehman Government Securities said the drop
  in March construction employment may also signal a drop in
  March housing starts, which rose 2.6 pct in February to 1.851
  million units at an annual rate from 1.804 million units in
  January.
      The rate of unemployment fell to 6.6 pct, its lowest level
  since March 1980, from 6.7 pct in February. But Wyss pointed
  out that this resulted from a drop in the labor force, which 
  fell to 119.2 mln in March from 119.35 mln in February.
      "This just means that there were fewer people looking for
  work, so the drop in unemployment doesn't mean much," he said.
      He said the latest employment report will not concern the
  Fed because it does points to GNP growth in the first half of
  2.5-3.0 pct, but "it does suggest they can't afford to tighten
  to quickly either."
      The statistical factors used to smooth out seasonal
  fluctuations in the jobs data may have understated March labor
  force gains, just as seasonal factors probably overstated them
  in January and February, Slifer said, but are consistent with
  his forecast of 1.8 pct first quarter GNP growth.
      Economic growth remains sluggish, but Silfer does not think
  that the Federal Open Market Committee changed policy at their
  meeting this week. "At some point they will be more inclined to
  ease," he said. For the time being, however, the March
  employment report "increases the likelihood they won't tighten,
  regardless of the dollar."
  

