U.S. Wages Rise
Wages and salaries rose at their fastest rate in more than eight years in the third quarter, the Labor Department said Thursday.
The department said the Employment Cost Index for all civilian workers rose 1 percent as wages and salaries soared 1.2 percent and benefit costs rose 0.8 percent. It was the biggest rise in wages since the second quarter of 1990.
Wall Street economists were expecting the ECI to rise 0.8 percent after a 0.9 percent gain in the second quarter.
For the past 12 months, the ECI for all civilian workers has increased 3.7 percent, the most since the 4 percent rise in the first quarter of 1992.
For private sector workers, the ECI rose 1.1 percent, the most since the third quarter of 1991. In the private sector, wages rose 1.3 percent and benefit costs rose 0.7 percent. For government workers, the ECI rose a moderate 0.8 percent.
The report indicates that the low unemployment rate and the resulting shortage of workers in some occupations is gradually pushing wages higher. The Federal Reserve had been on watch for such a trend until the global economic turmoil forced the Fed to shift its attention from fighting inflation to bolstering demand and liquidity.
Many analysts expect another interest rate cut when the Federal Open Market Committee meets again on Nov. 17 following two rate cuts in the past month. But the stronger-than-expected ECI gives the inflation hawks on the FOMC new ammunition in their argument that low unemployment is beginning to re-ignite general inflation.
So far, higher employment costs have been largely offset by lower raw material costs and reduced profit margins. Companies have been unable to raise prices in the current competitive climate.
In manufacturing, employment has been dropping for the past six months, reducing the pressure on wages. In manufacturing, the ECI rose 0.7 percent as wages rose 0.8 percent.
The story is somewhat different in services, which are less vulnerable to price pressures from foreign competitors and less dependent on materials prices. In services, the ECI rose 1.3 percent in the third quarter, with a 1.9 percent jump in finance, real estate and insurance. Wages for service workers rose 1.5 percent in the third quarter.
Written By Rex Nutting