WASHINGTON -- The economy last month edged significantly closer to encountering wage pressures that could ignite higher inflation, analysts said after the May employment report was released Friday.

Meanwhile, economists could not agree on whether the report, which showed much slower job creation than the two previous months but a large drop in the unemployment rate, indicated economic growth is slowing, picking up, or staying the same.

"It's quite accurate now to start to worry that conditions are starting to tighten up in the labor market," said Hugh Johnson, chief investment officer of First Albany Inc. "In the world of inflation, wage pressures are the 800-pound gorilla," he said.

Johnson's comments came after the Labor Department reported that nonfarm jobs grew by a seasonally adjusted 191,000 in May, which included 70,000 teamsters returning to work, while the unemployment rate plunged dramatically to 6.0% from 6.4% in April.

Payroll figures are based on a survey of businesses, while the unemployment rate is based on a survey of households.

The jobs gain fell well short of analysts' expectations. It followed a 358,000 advance in April, revised up considerably from the previous estimate, and a 379,000 increase in March, which was revised down notably, the department said. Analysts were also surprised by the big drop in the unemployment rate.

The report also showed that average hourly earnings in May grew to $11.11 from $11.05 in April, and average weekly hours worked increased to 34.9 hours from 34.7 hours.

Both gains were larger than what economists expected. They pointed to the gains and the drop in the unemployment rate as indications that the labor market was showing early signs of wage pressure.

"Hours worked continued to be stretched -- that's significant," said Sally Kleinman, an economist with Chemical Securities Inc. "That's an indication of strain in the labor market."

Jeff Thredgold, chief economist of KeyCorp., predicted wage pressures will start to kick in during the coming months. "It's a natural consequence of tightening labor markets," he said.

Meanwhile, the Clinton Administration reacted favorably to the report, indicating it showed continued strength in job creation with no immediate threat of higher inflation.

In Rome, President Clinton reportedly said he was "encouraged" by the May employment report. Back home, Laura D'Andrea Tyson, chairwoman of the president's Council of Economic Advisers, issued a statement saying, "So far the good news on job creation has been accompanied by good news on the inflation front."

The report reflected benchmark revisions and changes to seasonal adjustments of the jobs survey.

The benchmark revisions resulted in an average upward revision of about 25,000 to monthly payroll numbers, dating back to April 1992, or 600,000 additional jobs, according to Katharine Abraham, commissioner of the Bureau of Labor Statistics. She said the department was unable to quantify the effects from the changes to seasonal adjustments.

Abraham also said the drop in the unemployment rate from 6.4% to 6.0% should be taken with a grain of salt because large changes typically overstate actual swings in the labor market. "Personally I would not make too much out of that," she said at a press conference.

Also, she said the unemployment rate in May would have been 6.2% rather than 6.0% if new seasonal adjustments were used that will be instituted in July. "It nonetheless is clear that unemployment continues to trend downward," Abraham said.

Private analysts also downplayed the large drop in the unemployment rate. "I'm not sure many people will believe that number," said James Barkocy, domestic economist of Brown Brothers Harriman & Co.

On the growth front, economists' perceptions of the report varied greatly. Several said it had no effect on their outlook of growth around 4% in the second quarter, then tapering off in the second half of the year.

Other economists said the report as a whole showed improved economic strength despite the disappointing gain in nonfarm jobs.

Kim Rupert, a senior economist of MMS International, said Friday's report prompted her firm to revise up its second-quarter growth estimate slightly to 4.5%

Thredgold said the report prompted him to reduce his second-quarter growth forecast slightly to a range of 3.5% to 3.7%.

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