US labour costs increase 0.7 per cent in third quarter

[WASHINGTON] US labour costs accelerated in the third quarter amid increases in wages and benefits, leading to the biggest year-on-year increase in 2-1/2 years.

The Employment Cost Index, the broadest measure of labour costs, increased 0.7 per cent after an unrevised 0.5 per cent gain in the second quarter, the Labour Department said on Tuesday.

That lifted the year-on-year rate of increase to 2.5 per cent, the largest rise since the first quarter of 2015.

Economists polled by Reuters had forecast the ECI rising 0.7 per cent in the third quarter. Wage growth has remained stubbornly modest even as the labour market has tightened, with the unemployment rate at a 16-1/2 year low of 4.2 per cent.

Economists say labor costs need to rise by at least 3 per cent to push inflation closer to the US central bank's 2 per cent inflation target. Labour costs increased 2.4 per cent in the year to June.

Signs of a pickup in wage growth are likely to be welcomed by Federal Reserve officials, who are scheduled to begin a two-day policy meeting later on Tuesday. Steadily increasing wages offer hope that inflation could soon trend higher.

A government report on Monday showed the Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, increasing 1.3 per cent in the 12 months through September. The core PCE has undershot the Fed's 2 per cent target for nearly 5-1/2 years.

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.

Wages and salaries, which account for 70 per cent of employment costs, rose 0.7 per cent in the third quarter. They increased 0.5 per cent in the second quarter. Wages and salaries were up 2.5 per cent in the 12 months through September. That followed a 2.3 per cent gain in the year to June.

Benefits for all workers increased 0.8 per cent in the July-September quarter after rising 0.6 per cent in the second quarter. They were up 2.4 per cent in the 12 months through September.

REUTERS