US second-quarter labour costs gain smallest in one and half years

A construction labourer works high atop a building in down town Los Angeles, California, US on March 6, 2017. — Reuters pic
A construction labourer works high atop a building in down town Los Angeles, California, US on March 6, 2017. — Reuters pic

WASHINGTON, July 31 — US labour costs rose at their slowest pace in 1-1/2 years in the second quarter, the latest indication of benign inflation that could allow the Federal Reserve to cut interest rates today for the first time in a decade.

The Employment Cost Index, the broadest measure of labour costs, increased 0.6 per cent, the smallest gain since the fourth quarter of 2017, the Labor Department said today. The ECI had increased 0.7 per cent for two straight quarters.

In the 12 months through June, the ECI rose 2.7 per cent, slowing from a 2.8 per cent increase in the year through March.

Economists polled by Reuters had forecast the ECI would rise 0.7 per cent in the April-June period.

The ECI is widely viewed by policymakers and economists as one of the better measures of labour market slack. It is also considered a better predictor of core inflation. Labour costs picked up over 2018 as a tightening labour market pushed up wage growth. The pace of increases has since moderated somewhat.

The report came on the heels of data yesterday showing a key measure of inflation increased 1.6 per cent in the 12 months to June, continuing a pattern of slow gains that have seen it undershoot the Fed’s 2 per cent target this year.

Tame inflation and slowing economic growth are expected to encourage US central bank officials to cut rates when they conclude a two-day policy meeting later today.

The economy, which is cooling as the boost from last year’s US$1.5 trillion tax cut package fades, is facing headwinds from a bitter trade war between the United States and China, slowing global growth and Britain’s potential disorderly departure from the European Union.

Prices of US Treasuries were trading slightly higher today while the dollar was largely unchanged against a basket of currencies as traders awaited the Fed’s decision on rates. US stock index futures were up.

Job gains

In the second quarter, wages and salaries, which account for 70 per cent of employment costs, rose 0.7 per cent after rising by the same margin in the prior period. Wages and salaries were up 2.9 per cent in the 12 months through June, matching the gain in the year through March.

Private sector wages and salaries rose 0.6 per cent in the second quarter after increasing 0.7 per cent in the first quarter. They were up 3.0 per cent in the 12 months through June after rising by the same margin in the year through March.

State and local government wages and salaries rose 0.5 per cent after advancing 0.6 per cent in the first quarter.

Benefits for all workers rose 0.5 per cent in the April-June quarter, slowing from the first quarter’s 0.7 per cent rise. The moderation reflected a 0.4 per cent decline in benefits in the natural resources, construction and maintenance industry.

Benefits in the manufacturing industry rose only 0.5 per cent after surging 0.9 per cent in the first quarter.

Overall, benefits were up 2.3 per cent in the 12 months through June, the smallest gain since March 2017, after rising 2.6 per cent in the year through March.

Separately today, the ADP National Employment Report showed private payrolls increased by 156,000 jobs in July after rising 112,000 in June. The ADP report, which is jointly developed by Moody’s Analytics, has greatly understated the private payrolls component of the government’s employment report in each of the last two months.

Economists polled by Reuters are looking for nonfarm employment to have increased by 162,000 jobs in July after surging by 224,000 in June. Job gains averaged 172,000 per month in the first half of this year, below the 223,000 monthly average in 2018.

The pace of job gains, however, remains above the roughly 100,000 per month needed to keep up with growth in the working-age population. The unemployment rate is expected to have held steady at 3.7 per cent in July. — Reuters

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