The surprisingly steep drop in September job growth signals to economists that the nation's epic business boom is finally flagging-and that interest rates will drop significantly.

"The U.S. economy is clearly slowing in response to the global crisis," said Bruce Steinberg, chief economist at Merrill Lynch & Co. "We believe the Fed has a lot more easing to do."

The economy gained 69,000 jobs last month-well below the year's average of 218,000 per month and far below the hot monthly pace of 283,000 in 1997. The unemployment rate rose to 4.6% from 4.5% in August.

Manufacturing and construction payrolls fell, and services payrolls barely rose. Notably, 37,000 temporary jobs were lost.

"Temps are the first to go when economic conditions get shakier," Mr. Steinberg said.

"The economy looks like it has downshifted two gears," said Kenneth Mayland, chief economist at KeyCorp. "The only question is the size of the next Fed cut."

He said he expects the Federal Reserve to cut short-term rates another 75 basis points by spring-and perhaps sooner.

The central bank last week pushed down its target for the federal funds rate by 25 basis points, to 5.25%, in the first such easing in nearly three years. The move was greeted as too timid by financial markets.

"Putting it all together, the jobs report helps build a case that the Fed's work is not done in lowering the funds rate," said Stuart G. Hoffman, chief economist at PNC Bank Corp., Pittsburgh.

"I think the Fed will cut again in November or December, and that won't end it," he said. "I look at last week's cut as the first of a series of moves. The cautious Fed would like to space those out, but the financial markets and the economy will have a lot to say about it, just as long as inflation remains low."

Mr. Hoffman and others feel it will. Wage gains, so carefully scrutinized by the Fed's inflation hawks, remain moderate. Hourly wages were up just 0.1% in September, or 4% from the year before.

Edward Yardeni, chief economist at Deutsche Bank Securities Inc. in New York pointed out that the 4% increase from September 1997 was less than the 4.2% annual change in July and 4.3% in May. Meanwhile, the nonfarm workweek fell 0.2 hour last month.

"I think we're currently in a pricing recession-particularly in the commodity, farming, and manufacturing sectors," Mr. Yardeni said. That was visible in the National Association of Purchasing Managers pricing index, which, he noted, fell to a 50-year low in September.

"The pricing recession is pushing the entire corporate sector into a profits recession," he said, "and that is likely to hurt capital spending, force cutbacks in hiring, and put downward pressure on wages.

"Today's employment numbers suggest that is already happening," he said. "There is a sea change under way to a weaker labor market than we have seen in some time."

Mr. Yardeni said he thinks that, by yearend 1999, rates for both federal funds and the 30-year government bond may have fallen to 4%.

Some go even further. The Jerome Levy Economics Institute of Bard College, Annandale, N.Y., forecast that the 30-year yield may fall to 3.5% by the end of next year "and 3% is by no means out of the question."

Six months ago, investors anticipated a Fed tightening this year, the Levy economists said. "A month ago, they were divided. Now the consensus anticipates easing in coming months. Changes in expectations will be even more acute over the next six months."

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