By Ben Leubsdorf
U.S. labor costs accelerated in early 2015, a sign that the job
market may be tightening and beginning to generate a long-awaited
pickup in workers' wages.
A separate gauge of prices, however, suggested little change in
underlying U.S. inflation pressures.
The employment-cost index, a broad measure of wage and benefit
expenses, rose a seasonally adjusted 0.7% in the first quarter, up
from its 0.5% gain in the final three months of 2014, the Labor
Department said Thursday. Economists surveyed by The Wall Street
Journal expected the gauge would rise 0.6%.
On an annual basis, labor costs rose 2.6% in the first quarter,
accelerating from 2.2% growth in the third and fourth quarters.
Private-industry wages and salaries jumped to 2.8% annual growth in
early 2015 from 2.2% in the final three months of last year,
registering their strongest year-over-year growth since the third
quarter of 2008.
"The trend...has accelerated noticeably over the past few
quarters, suggesting that reduced slack in the labor market has put
some upward pressure on compensation," J.P. Morgan Chase economist
Daniel Silver said in a note to clients.
A number of big U.S. companies have announced pay increases in
recent months, seeking to attract and retain workers in a tighter
market. McDonald's Corp. plans to raise wages starting this summer
at the roughly 1,500 U.S. restaurants it owns, though the move
won't apply to the franchisees that operate nearly 90% of the
chain's restaurants. Retailers Wal-Mart Stores Inc. and Target
Corp. also have announced plans to raise pay, as has health insurer
Aetna Inc.
After four or five years of wages rising 1% annually, Cheesecake
Factory Inc. expects its worker pay to increase 3% this year, in
part due to higher state minimum wages.
"We know that we're going to be managing more wage rate
inflation than what we've seen in the past," Chief Financial
Officer Doug Benn told analysts last week.
The overall trend of growth in wage and benefits costs may be a
signal that the U.S. economy has finally improved to the point
where workers' wages, which have been stuck at roughly 2% annual
growth for a half-decade, are beginning to climb.
But the year-over-year jump in Thursday's report may have been
exaggerated somewhat by the weak reading for employment costs in
the first three months of 2014, when wage and benefit expenses
climbed just 0.3% on the quarter.
Morgan Stanley economist Ted Wieseman also noted that the pickup
was concentrated in workers whose pay includes incentives like
sales commissions. "There's been significantly less recent
underlying acceleration in regular pay than suggested by the
headline results," he said in a note to clients.
Another broad measure of U.S. wage growth has remained largely
flat in recent months. Average hourly earnings for private-sector
workers rose 2.1% in March from a year earlier, little changed from
the 2% annual average since the beginning of 2010, according to
separate Labor Department data.
Employers like Murphy USA Inc., an El Dorado, Ark.-based chain
of gas stations, aren't feeling much more pressure on labor
costs.
"We've been able to keep wages, frankly, largely in check,"
Chief Executive Andrew Clyde said on a conference call in
mid-April.
There's also little sign of a pickup for subdued U.S. price
growth. The personal consumption expenditures price index, which is
the Fed's preferred inflation gauge, rose 0.3% in March from a year
earlier, unchanged from the prior month and well below the central
bank's 2% annual target, the Commerce Department said Thursday.
Prices excluding the volatile categories of food and energy rose
1.3% on the year for the fourth consecutive month.
Still, Thursday's ECI report clearly showed gains in the first
quarter compared with the prior three months. Civilian worker wages
and salaries, which make up roughly 70% of compensation costs, rose
0.7% compared with 0.6% growth in the fourth quarter. Benefit costs
rose 0.6%, matching their growth in the final three months of
2014.
"Workers finally appear to be benefitting from the tighter labor
market, " PNC Financial Services Group chief economist Stu Hoffman
said in a note to clients.
Economists say that price and wage increases should gain
traction as the economy heals, the labor market tightens and
employers compete to hire from a shrinking pool of available
workers. But U.S. inflation remains sluggish and wage growth has
stagnated since the recession ended in mid-2009.
"The low rate of wage growth is, to me, another sign that the
Fed's job is not yet done," Federal Reserve Chairwoman Janet Yellen
said last year.
The Fed is preparing to increase interest rates, perhaps as
early as this summer, and policy makers are watching for signs of
tightening in the labor market. The central bank reiterated in its
policy statement on Wednesday that it will raise rates when the
labor market has improved further and when officials are
"reasonably confident" that inflation will move back toward their
2% annual goal.
Stronger wage growth could be an important signal. A pickup in
wages isn't "indispensable for me to achieve reasonable
confidence," Ms. Yellen said in late March. But she also said she
would be "uncomfortable" raising rates if wage growth appeared to
weaken.
The ECI, which covers both private-sector workers and government
employees, averaged 0.5% quarterly growth in 2010 through 2014. But
it appeared to start firming last year, and has posted 0.7% growth
in three of the last four quarters.
"There are signs of wages beginning to rise in a variety of
places," Fed Vice Chairman Stanley Fischer said in mid-April.
The labor market saw robust growth last year. U.S. employers
added 3.1 million jobs in 2014, the strongest year of payrolls
growth since 1999. The unemployment rate fell to 5.6% in December
from 6.7% a year earlier.
But while the jobless rate edged down to 5.5% as of March, the
pace of hiring decelerated sharply in the first three months of
2015. Seasonally adjusted payrolls rose by a monthly average of
197,000 in the first quarter, down from 324,000 per month in the
fourth quarter.
At the same time, broader economic growth slowed to a crawl.
Gross domestic product, the broadest measure of goods and services
produced across the U.S. economy, grew at a 0.2% seasonally
adjusted annual rate in the first quarter, the Commerce Department
said Wednesday. GDP had expanded at a 2.2% pace in the fourth
quarter, down from a 5% growth rate in the third quarter of
2014.
Write to Ben Leubsdorf at ben.leubsdorf@wsj.com
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