US labour costs rise strongly in Q2

US labour costs increased strongly in the second quarter as a tight jobs market continued to boost wage growth, which could keep inflation elevated and give the Federal Reserve cover to continue its aggressive interest rate hikes.

Other data on Friday showed consumer spending accelerating in June, though the uptick was tied to higher costs for gasoline as well as a range of other goods and services, with monthly prices surging by the most since 2005. Soaring inflation contributed to the economy’s contraction in the first half of this year, leaving it on the brink of a recession.

“The Fed will continue to grapple with trying to tame inflation without tipping the economy into a recession,” said Dante DeAntonio, an economist at Moody’s Analytics in West Chester, Pennsylvania “The data on wage and price growth will not do them any favours as upward pressure clearly remains even as the overall economy has weakened.”

The Employment Cost Index, the broadest measure of labour costs, increased 1.3 per cent last quarter after accelerating 1.4 per cent in the January-March period, the Labor Department said.

Economists polled by Reuters had forecast the ECI would rise 1.2 per cent in the second quarter. Labour costs surged 5.1 per cent on a year-on-year basis, the largest rise since the current series started in 2001, after increasing 4.5 per cent in the first quarter.

The ECI is widely viewed by policymakers and economists as one of the better measures of labour market slack and a predictor of core inflation, as it adjusts for composition and job-quality changes. It is being closely watched for signs of whether wage growth has peaked as economists and investors try to gauge the pace of the Fed’s interest rate hikes.

The US central bank on Wednesday raised its policy rate by another three-quarters of a percentage point. It has now hiked that rate by 225 basis points since March.

There have been mixed signals on wages. While annual growth in average hourly earnings in the Labor Department’s monthly employment report slowed in the first half of the year, the Atlanta Fed’s wage tracker accelerated.

The Fed’s Beige Book report this month showed that “most districts continued to report wage growth,” and “a quarter of districts indicated wage growth will remain elevated for the next six months.”

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US economy shrinks for second quarter, fuelling recession fears

There were 11.3 million job openings at the end of May, with nearly two open positions for every unemployed person.

Employment costs were boosted by strong wage gains. Wages and salaries shot up 1.4 per cent in the second quarter after rising 1.2 per cent in the first quarter. They were up 5.3 per cent on a year-on-year basis.

The private sector was the main driver of the increase, with wages and salaries there notching a 1.6 per cent increase in the second quarter, up from 1.3 per cent in the January-March period. REUTERS