U.S. Workers Get Biggest Pay Increase in Nearly a Decade -- 3rd Update
July 31 2018 - 7:40PM
Dow Jones News
By Harriet Torry
WASHINGTON -- U.S. workers received their biggest pay increases
in nearly a decade over the 12 months through June, a sign the
strong labor market is boosting wages as employers compete for
scarcer workers.
The Labor Department's employment-cost index rose 2.8% in the
year to June compared, the government said Tuesday. Wages and
salaries, which account for about 70% of all employment costs, also
rose 2.8% from a year earlier, the strongest gain for both measures
since September 2008.
Since the end of the most recent recession, U.S. unemployment
has fallen to 4% in June from nearly 10% nine years earlier. Wage
growth, stubbornly sluggish for years following the 2007-2009
downturn, has picked up as the labor market has tightened and
employers have raised pay to attract and retain workers.
It is now approaching the average pace seen in earlier periods
of growth. From 2001 to 2007, wages and salaries as measured by the
employment-cost index increased 2.9% a year on average, well above
the 1.9% average since the second quarter of 2009 when the current
expansion began.
Wage gains are coming with a modest pickup in inflation, which
is eating at some of the gains for workers.
A separate report Tuesday from the Commerce Department showed
inflation continues to hover near the Federal Reserve's 2%
year-over-year target. The price index for personal-consumption
expenditures was up 2.2% in June from a year earlier and rose 0.1%
from May. Excluding volatile food and energy costs, prices also
rose 0.1% from May and increased 1.9% from a year earlier.
Some companies are raising prices to compensate for higher
commodity costs. Procter & Gamble Co. said Tuesday it was
raising prices on some of its biggest brands, a strategy shift
after the consumer-products giant reported another quarter of
lackluster revenue growth and weak demand.
Boat-engine maker Brunswick Corp. has raised average selling
prices by 6% so far this year, partly in response to raw materials
inflation, and the company intends to keep raising prices over the
second half of the year.
People "don't like [a] price increase, but it really hasn't
affected the demand or the market," Brunswick Chief Executive Mark
Schwabero said during a July earnings call.
Still, many economists said the gradual pace of price and wage
increases means the overall picture for inflation and the economy
remains rosy as the third quarter progresses.
"What we've been seeing is a very modest, gradual acceleration
in wages, " said JPMorgan Chase economist Michael Feroli. The
employment-cost index, a measure of wages and benefits for civilian
workers, is slowly moving in the right direction, he said.
Stable inflation, gradually rising wages and low unemployment
suggest the U.S. economy's Goldilocks moment is continuing, running
neither too hot nor too cold. In the second quarter, the U.S.
economy grew at the fastest pace in nearly four years, notching an
annual growth rate of 4.1%.
A broad measure of Americans' pretax income -- including that
from wages and salaries and other sources, such as investments and
government payments -- rose at a solid 0.4% rate in June from May.
Such household income is up about 5% from a year earlier, roughly
keeping pace with the increase in consumer spending during that
time.
The Conference Board on Tuesday said its index of U.S. consumer
confidence rose to 127.4 in July from 127.1 in June. The index has
eased from highs earlier in the year, as has the University of
Michigan's consumer-sentiment index, which declined in July for the
third time in four months.
Signs of gradually rising inflation come as U.S. central bankers
meet in Washington, D.C., for a two-day policy gathering. Officials
are likely to leave their benchmark federal-funds rate unchanged
Wednesday and wait until September for the next increase. They
raised the rate twice this year, most recently in June to a range
between 1.75% and 2%, and have penciled in two more moves this
year.
Fed officials believe a little bit of inflation at a consistent
and predictable rate is needed to keep the economy growing steadily
and at a healthy pace.
--Eric Morath contributed to this article.
Write to Harriet Torry at harriet.torry@wsj.com
(END) Dow Jones Newswires
July 31, 2018 19:25 ET (23:25 GMT)
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