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."