Employment costs grew slower in Q2

By Matt Ott
Associated Press

WASHINGTON (AP) - Wages and benefits paid to U.S. civilian workers grew more slowly in the second quarter.

The Labor Department said last Friday total compensation was up 0.5 percent in the April-June period, compared to 0.8 percent growth in the first quarter.

Wages and salaries, which account for 70 percent of compensation costs, also rose 0.5 percent. Benefit costs, which cover pensions and health insurance, increased 0.6 percent.

The slight slowdown in the second quarter likely means the Federal Reserve won't be worrying about wage growth rising too quickly. Indeed, the Fed has expressed concern recently that inflation has fallen farther from its 2 percent annual target.

Normally, solid hiring drives up wages and prices. But earlier this week, the Fed kept its key interest rate unchanged and said inflation has stayed undesirably low even though the job market keeps strengthening. Too-low inflation can slow economic growth by causing people to delay purchases if they think they can buy a product for a lower price later.

Despite this quarter's slower increase, the Employment Cost Index has shown steady improvement as the unemployment rate has fallen to 4.4 percent.

"We still expect labor costs to accelerate in the quarters ahead," said Joshua Shapiro, an economist with MFR, Inc. "However, given that recent data on this front have been much tamer than models anticipate given the low unemployment rate, forecasts of acceleration are not likely to prove sufficient for monetary policymakers."

In the past year, salaries and benefits have risen 2.4 percent. That matches the increase for the 12 months ending in March 2017, but is below the roughly 3.5 percent generally considered consistent with a healthy economy.

Compensation for state and local government workers grew 0.5 percent, compared to the previous quarter's gain of 0.6 percent.

Among private sector workers, compensation also rose 0.5 percent, compared to 0.8 percent in the first quarter. Private industry workers employed in maintenance, technology, financial and insurance fields saw the strongest wage and benefit growth.

Published: Tue, Aug 01, 2017