Worker Pay in U.S. Rose 0.6% in Fourth Quarter, as Forecast

  • Employment cost index, which includes benefits, also rose
  • Wage acceleration remains elusive even as job market stronger

Wages and salaries in the U.S. rose in the fourth quarter at the same pace as in the previous three months, indicating gradual tightening in the labor market has yet to put pressure on employers to boost pay.

The 0.6 percent advance in worker paychecks matched the increase in the third quarter, the Labor Department said Friday. The agency’s employment cost index, which also includes benefits, climbed 0.6 percent in the fourth quarter from the prior three months, matching the median forecast of 60 economists surveyed by Bloomberg.

Steady payrolls growth and joblessness lingering close to a seven-year low are projected to prompt employers to boost wages as they vie to attract and keep skilled workers. Signs of a long-awaited pickup in wage growth would give Federal Reserve policy makers greater confidence that inflation will rise toward their 2 percent goal.

“The labor market over the past year has shown several signs that wage acceleration was just around the corner, but it hasn’t materialized yet,” said Thomas Simons, a money-market economist in New York at Jefferies Group LLC. “With every passing month, we get more signs that it will come at some point.”

Survey Results

Bloomberg survey forecasts for the ECI ranged from unchanged to 0.9 percent increase. 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 December employment report showed hourly earnings were $25.24 on average, down one cent from the prior month. They climbed 2.5 percent from a year earlier, less than the 2.7 percent gain projected in the Bloomberg survey of economists.

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, the same as in the third quarter.

Private Wages

Private wages rose 0.6 percent in the fourth quarter from the previous three months, when they increased 0.7 percent. Pay for state and local government workers advanced 0.4 percent.

Benefit costs for all workers, which include some bonuses, severance pay, health insurance and paid vacations, climbed 0.7 percent, reflecting a jump among state and local government employees. Compared with the same three months in 2014, benefit expenses were up 1.3 percent.

Hiring has remained a bright spot for the U.S. economy even as a global slowdown and financial-market turmoil could give policy makers pause after they raised the benchmark interest rate in December for the first time since 2006.

Payrolls surged by 292,000 in December, exceeding the highest estimate in a Bloomberg survey. The unemployment rate held at a seven-year low of 5 percent.

Fed Statement

Fed officials reported earlier this week that “labor market conditions improved further” and that more job-market slack had been absorbed since their meeting in December, according to the Jan. 27 statement after their two-day meeting in Washington.

The central bankers added that they were “closely monitoring global economic and financial developments” while “assessing their implications for the balance of risks to the outlook.”

Aiming for maximum employment and price stability, the central bankers have seen a lack of wage growth further weigh on inflation. While the jobless rate has reached the upper end of the officials’ estimate of full employment, inflation has lingered well below their 2 percent goal for almost four years.

(Updates with economist comment in fourth paragraph.)

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