US private payrolls growth maintains brisk pace; labor costs rise in Q4

[WASHINGTON] US private sector payrolls rose at a brisk pace in January as hiring increased across the board despite unseasonably cold weather, pointing to sustained labor market strength at the start of the year.

Other data on Wednesday showed a solid increase in labor costs in the fourth quarter. Growth in compensation is expected to accelerate as the tightening labor market forces employers to raise wages to retain and attract workers.

The ADP national employment report showed private sector employment rose by 234,000 jobs in January, beating economists' expectations for an increase of only 185,000. December's payrolls count was revised down to 242,000 from 250,000.

The ADP report, which is jointly produced with Moody's Analytics, was published ahead of the release on Friday of the government' comprehensive employment data for January.

According to a Reuters survey of economists, nonfarm payrolls probably rose by 180,000 jobs in January after increasing 148,000 in December. The unemployment rate is forecast unchanged at 4.1 per cent.

"The job market juggernaut marches on," said Mark Zandi, chief economist at Moody's Analytics in West Chester Pennsylvania. "Given the strong January job gain, 2018 is on track to be the eighth consecutive year in which the economy creates over 2 million jobs." US financial markets were little moved by the data.

In a separate report the Labor Department said the Employment Cost Index, the broadest measure of labor costs, increased 0.6 per cent in the fourth quarter after an unrevised 0.7 per cent rise in the third quarter. That lifted the year-on-year rate of increase to 2.6 per cent, the largest increase since the first quarter of 2015, from 2.5 per cent in the third quarter.

Wages and salaries, which account for 70 per cent of employment costs, rose 0.5 per cent in the fourth quarter after advancing 0.7 per cent in the prior period. Wages and salaries were up 2.5 per cent in the 12 months through December. That followed a similar gain in the year to September.

Wage growth is expected to get a boost from a strong labor market, which is forecast to hit full employment this year.

The unemployment rate is at a 17-year low of 4.1 per cent and economists expect it to drop to 3.5 per cent by the end of 2018.

A US$1.5 trillion tax cut package pushed through by the Trump administration and the Republican-controlled US Congress in December is also expected to bolster compensation growth. The tax cut has resulted in some companies either paying out one-time bonuses or raising wages for employees.

Companies like Starbucks Corp and FedEx Corp have announced they will use some of the savings from the tax cut to boost wages for workers.

The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack. It is also considered a better predictor of core inflation. Economists say labor costs need to rise by at least 3 percent to push inflation closer to the U.S. central bank's 2 percent inflation target.

Labor costs increased 2.5 per cent in the year to September.

Private sector wages and salaries rose 0.6 per cent in the fourth quarter. They were up 2.8 per cent in the 12 months through December, the biggest increase since the first quarter of 2015. That followed a 2.6 per cent gain in the year to September.

Benefits for all workers increased 0.5 per cent in the October-December quarter after rising 0.8 per cent in the third quarter. They were up 2.5 per cent in the 12 months through December after rising 2.4 per cent in the year to September.

REUTERS