U.S. Wages, Benefits Rise at Fastest Pace in Almost Six Years

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from The Wall Street Journal,

Lower Unemployment Could Be Pushing Employers’ Labor Costs, and Workers’ Pay, Higher.

U.S. employers’ labor costs rose in the second quarter at the fastest rate in nearly six years, a sign that a tightening labor market may be raising pressure on companies to boost worker pay.

The employment-cost index, a broad measure of pay and benefits, rose a seasonally adjusted 0.7% during the period from April to June, the Labor Department said Thursday. Economists surveyed by The Wall Street Journal expected a 0.5% increase.

Wages and salaries, which make up about 70% of compensation costs, rose 0.6% in the second quarter, the fastest rate of increase since the third quarter of 2008. Benefits, which include paid leave and insurance policies, rose 1%.

Eric Green, head of U.S. rates and economic research for TD Securities, said the data provided a “clear indication, though still an incomplete one, that wage inflation is now beginning to take root.”

An ample supply of labor amid high unemployment has helped keep in check any need employers might feel to raise wages. But the rate of job creation has accelerated in recent months, helping to lower the nation’s unemployment rate and indicating that wage pressures could start to emerge.

Stronger wage growth has been a key missing element of the economic recovery. Stagnant wages have helped restrain consumer spending, which drives more than two thirds of U.S. economic output.

Some economists treated Thursday’s report with caution, noting the data could include some payback from an unusually weak reading in the first quarter, when the index rose 0.3%. Compared with the same period last year, the index rose 2% in the second quarter, in line with its recent trend.

The employment-cost index typically rose 3% to 4% annually in the years before the recession.

In a statement issued after this week’s policy meeting, the central bank noted the recent rapid decline in the nation’s unemployment rate but added that a “range of labor market indicators suggests that there remains significant under-utilization of labor resources.”

The Labor Department will release hourly earnings data for July on Friday in its closely watched employment report.

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