Quarterly Increase in U.S. Worker Pay Smallest on Record

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Worker Pay in U.S. Rises 0.2%, Smallest Gain in Records to 1982

Federal Reserve Chair Janet Yellen and her colleagues are counting on rising wages to boost the economy and bring inflation closer to their 2 percent goal.

Photographer: Luke Sharrett/Bloomberg
Source: Bloomberg

Wages and salaries in the U.S. rose in the second quarter at the slowest pace on record, dashing projections that an improving labor market would boost pay.

The 0.2 percent advance was the smallest since records began in 1982 and followed a 0.7 percent increase in the first quarter, the Labor Department said Friday. The agency’s employment cost index, which also includes benefits, also rose 0.2 percent in the second quarter from the prior three months.

Federal Reserve Chair Janet Yellen and her colleagues are counting on rising wages to boost the economy and bring inflation closer to their 2 percent goal. The setback may prompt some officials to call for a delay in raising interest rates for the first time since 2006.

“You’re really not building up the tightness that everyone says,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York, who projected the overall ECI would rise 0.5 percent, among the lowest estimates. “For the people who were saying the Fed’s got to raise rates in September, this is a shock.”

The yield on the benchmark 10-year note dropped to 2.21 percent at 8:47 a.m. in New York from 2.26 percent late on Thursday as investors weighed what impact it would have on Fed policy. Stock-index futures rallied after the report.

Survey Results

The median forecast of 57 economists surveyed projected a 0.6 percent increase for the total ECI index. Last quarter’s reading was lower than all estimates, which ranged from increases of 0.4 percent to 0.8 percent. The gauge measures employer-paid taxes such as Social Security and Medicare in addition to the costs of wages and benefits.

Wages and salaries typically account for about 70 percent of total employment expenses. The ECI data help color the outlook for worker pay after the June employment report showed average hourly earnings rose 2 percent from a year earlier, matching the average since the start of the expansion six years ago.

Because the ECI tracks the same job over time, it removes shifts in the mix of workers across industries, which is a shortcoming of the hourly earnings figures.

Wages of all employees, including government workers, advanced 2.1 percent from the same period in 2014 after climbing 2.6 percent year-over-year in the first quarter.

Private Wages

Private wages were little changed in the second quarter from the previous three months, the worst performance since those records began in 1980.

Wage growth has been slow to respond to indications that the labor market is tightening, which would normally cause managers to feel pressure to boost pay amid a smaller pool of workers.

Job openings climbed in May to 5.36 million, the highest in records dating to the end of 2000, Labor Department data show. There are about 1.6 Americans per available position, matching the lowest level since September 2007.

Surveys of small businesses, at least, show managers aren’t planning on further need to raise wages in order to attract and retain employees.

A net 11 percent of managers in June said they plan to increase pay, the fewest since January 2014, according to 620 responses in a National Federation of Independent Business survey. A net 21 percent said they had already recently boosted worker compensation.

Payroll Gains

Wage growth has been slow to emerge even as the job market strengthens. Employers have added an average 208,300 positions a month this year compared with 259,700 in 2014 that was the best in 15 years. Economists surveyed by Bloomberg project 2015 will show a 220,000 average, according to a poll conducted July 2-8.

The unemployment rate is fast approaching the 5-to-5.2 percent range that Fed policy makers have defined as full employment. The rate dropped to 5.3 percent in June, the lowest since April 2008.

“The labor market continued to improve, with solid job gains and declining unemployment,” Fed policy makers said in a statement Wednesday at the conclusion of their two-day meeting in Washington. “On balance, a range of labor market indicators suggests that underutilization of labor resources has diminished since early this year.”

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