Sunday, August 05, 2007

U.S. employment costs up 0.9% in quarter


By Greg Robb, MarketWatch
Last Update: 11:16 AM ET Jul 31, 2007

WASHINGTON (MarketWatch) -- U.S. compensation costs rose 0.9% in the second quarter, as wages and salaries eased while benefits picked up, the Labor Department said Tuesday.

The increase in second-quarter employment costs was in line with expectations.

Wages and salaries rose 0.8% in the second quarter, down from a hefty 1.1% gain in the first quarter. Read the full government survey.

"This slowing [in wages] mirrors and confirms the softening in the hourly earnings data, and suggest that fears of a surge in wages, driven by the sustained low unemployment rate, are overdone," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

'Employment cost pressures are remaining remarkably stable.'
— Joel Naroff, Naroff Economic Advisors

Benefits rebounded 1.3% in the second quarter, up from modest 0.1% growth in the first quarter.

Calculated out over the past year, employment costs have increased 3.3%, down from a 3.5% annualized pace in the first quarter.

"Employment cost pressures are remaining remarkably stable as the low unemployment rate does not seem to be creating major problems," said Joel Naroff, president of Naroff Economic Advisors.

In a separate report issued Tuesday, the Commerce Department said core inflation fell to a three-year low of 1.9% in the 12 months through June, within the Federal Reserve's unofficial comfort zone. See full story.

Naroff said the data should prompt Fed policymakers to move toward a more balanced risk statement at their meeting next Tuesday, instead of saying that inflation is its top policy concern. See Fed coverage

Wages and salary costs have increased 3.4% in the past year, down from growth of 3.6% in the first quarter.

Similarly, benefit costs increased 3.4% in the second quarter, but this was up from 3.1% in the first quarter.

Employment costs are watched closely by the Fed. The U.S. central bank theorizes that inflation can only be sustained if workers force their bosses to pay higher compensation, which is then passed on to customers in the form of increased prices.

For private-sector workers, the employment cost index, or ECI, increased 0.9% in the second quarter, as wages moved up 0.8% and benefit costs rose 1.1%.

Measured over the past year, the ECI for private-sector workers is up 3.1%, compared with growth rates of 3.2% in the first quarter and 2.8% in the same quarter last year.

And for state and government workers, compensation decelerated to 1.1% growth, down from a 1.3% increase in the first quarter.

Over the past year, the ECI for government workers is up 4.8%, the highest level since the second quarter of 1991.

Rounding out a busy day for economic data, the Conference Board reported that consumer confidence rose in July to its highest level since the Sept. 11, 2001, terrorist attacks. See full story.

And the Commerce Department reported that construction spending fell 0.3% in June. See construction spending story. Greg Robb is a senior reporter for MarketWatch in Washington.

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