JOBLESS RATE IS LOWEST SINCE '80S.

Byline: Bert D. Hershey Jr. The New York Times

The unemployment rate edged down to 5.2 percent last month - matching its lowest level in eight years - as the reinvigorated economy continued to produce a bountiful labor market for legions of Americans.

While the government reported Friday that employers added 175,000 workers to their payrolls in March, fewer than expected, every other economic indicator pointed to strong growth that may well prompt the Federal Reserve Board to raise interest rates again soon.

Hourly earnings climbed to a point 4 percent above those of March 1996, the briskest annual increase of the long-running business expansion that reached its sixth anniversary last month.

Meanwhile, overtime at the nation's factories was a record 4.9 hours a worker, making it more likely that industry would need to bid up wages to attract additional skilled workers.

But what was good news for workers sent the bond market into a tizzy, pushing long-term interest rates higher on fears that the Federal Reserve, which only last week decided to raise interest rates for the first time in 14 months, could do so again as early as its next meeting in May.

The shaky stock market, divided between worries over higher interest rates and hopes for healthy corporate earnings that are both outcomes of a stronger economy, gyrated wildly. The Dow Jones industrial average closed at 6,526.07, up 48.72 points, but only after a slide of 72 points at the opening bell.

The Fed's move last week is now widely seen as likely to become just the first of a series of interest-rate increases. Indeed, even Merrill Lynch, which had expected the economy to slow enough on its own to stay the Fed's hand, joined the other camp after the Labor Department issued its monthly jobs report Friday.

``We are throwing in the towel and now assume that the Fed will probably tighten twice more,'' Bruce Steinberg, a senior economist at Merrill Lynch, advised clients. This, he added, means that the economy should be ``slowing sharply'' by year's end.

But while many on Wall Street fretted, the Clinton administration expressed confidence that price increases would be held in check and the economy would continue to expand at a healthy rate.

``The economy is continuing on a path of steady, sustainable expansion with strong job creation and low inflation,'' Janet Yellen, chief economic adviser to President Clinton and a former member of the Federal Reserve Board, said in a prepared statement.

She added in an interview: ``I don't see any evidence of an acceleration.''

Yellen pointed to the moderate increase in workers on employer payrolls as suggesting that inflation prospects were more benign than many analysts contend.

While payrolls grow by a moderate 175,000 in March, the February increase was revised to 293,000, or 46,000 fewer than initially reported.

Not only did a slightly smaller proportion of companies add to their payrolls last month than in February, but there also was a slight decline in the length of the private-sector workweek despite the rise in overtime.

``I really don't see cost-push inflation in these data,'' said Lincoln Anderson, economist for the Fidelity mutual fund group in Boston. ``Companies are not reporting to us that there's a significant earnings squeeze from rising labor costs.''

And Yellen, while acknowledging it to be a crude gauge, said that 4 percent wage growth and 3 percent consumer inflation over the past year should be regarded as in line with productivity improvement, which means that companies should be able to sustain decent profits without having to raise prices.

But many analysts are convinced that higher inflation is on the way. ``Inflation is going to creep up,'' Todd Speiser, a trader at Aubrey G. Lanston & Co., said.

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Chart: (Color) ECONOMIC INDICATOR

United States employment

Source: Department of Labor

Associated Press