Published: Sat, November 03, 2018
Money | By Armando Alvarado

Rising wages boost United States labor costs in third quarter

Rising wages boost United States labor costs in third quarter

That compared with the median estimate of economists for a 0.7 percent increase.

Wages and salaries were up 2.9 percent in the 12 months through September.

At the same time, overall benefits rose at a slower pace in the third quarter, increasing 0.4 percent from the prior period, following a 0.9 percent gain. Wage pressures have been building as the unemployment rate has remained at 3.7 percent, the lowest since December 1969.

US job growth rebounded sharply in October and wages recorded their largest annual gain in 9-1/2 years, pointing to further labor market tightening that could encourage the Federal Reserve to raise interest rates again in December. The ECI is widely viewed by policymakers and economists as a reliable predictor of core inflation.

Employment gains averaged 218,000 jobs per month over the past three months, double the roughly 100,000 needed to keep up with growth in the working-age population. Unemployment is at a 49-year low and there are more job openings than unemployed Americans, which forces companies to fight for available workers. The annual increase is expected to surpass 3 percent in October's figures, which would be the first gain at that pace since 2009. State and local government workers saw their wages rise 2.5 percent over the past year. That followed a 2.9 percent gain in the year to June.

The Present Situation Index - based on consumers' assessment of current business and labor market conditions - turned in an even bigger gain, rising from 169.4 to 172.8. The personal consumption expenditures price index excluding the volatile food and energy components, which is the Fed's preferred inflation measure, has increased by 2.0 percent for five straight months.

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"Wages are grinding higher as the labor market continues to tighten", said Justin Weidner, an economist at Deutsche Bank.

With 3.7 percent unemployment, some economists view the jobs market as being close to or at full employment. The Conference Board said its Consumer Confidence Index reached 137.9 this month, up from 135.3 in September. They were up 2.6 percent in the 12 months through September after rising 2.9 percent in the year to June.

"Broadening wage pressures across industry groups and across the pay scale are helping to drive sustained gains in wages for workers", said Ellen Zentner, chief economist at Morgan Stanley in NY.

"It's not about the tax cuts". While manufacturing and other blue-collar professions are seeing some of the fastest job growth since the mid-1980s, pay is not rising. The services sector did the most hiring, with the biggest expansion coming in trade, transportation, and utility companies.

The Fed is not expected to raise rates at its meeting next Wednesday, but economists believe strong labour market data could see the USA central bank signal an increase in December.

Information for this article was contributed by Heather Long of The Washington Post; by Christopher Rugaber of The Associated Press; and by Shobhana Chandra of Bloomberg News.

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