US labour costs in the second quarter recorded their smallest increase in 33 years amid tepid gains in the private sector, but it likely was a temporary setback against the backdrop of diminishing labour market slack.
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The unexpectedly smaller rise reported by the Labor Department on Friday will probably not dampen speculation that the Federal Reserve is set to raise interest rates later this year.
These labor-cost measures inform an ongoing debate as to whether the job market has largely returned to health after the Great Recession or if it is still weak, leaving behind millions of people who want to work or earn a better income.
Mr. Green said that the Fed will have an “exact” interpretation of the report. In the first quarter, the EC index rose 0.7%.
Most of those that experience lower compensations are those in information, sales, and wholesale sectors – aspects of jobs that employees are prone to getting incentive pay. Hourly pay for a typical employee rose 3.2 percent in June from 12 months earlier, according to the Atlanta Fed. The year-to-year increase in wages in the first quarter at 2.6 per cent was the strongest since the end of 2008.
The second quarter assessment is indicating a discouraging growth rate in wages and salaries, having a slowest pace of growth on record.
Unemployment at a rate of 5.3% is near the 5% to 5.2% range that the majority of officials in the Fed consider consistent with the country having full employment. On the other hand, Reuters said that while wage increases are trailing employment numbers indicators point to eventual hastening in wage growth.
Friday’s release, the Employment Cost Index, gives a more comprehensive view of workers’ pay because it includes not just wages and salaries but also fringe benefits. They had increased 0.7pc in the first quarter.
But the latest slowdown suggests slack remains in the jobs market and could bolster the case for officials to wait longer to raise rates. 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.
“It’s a big shock”, says Yaylaci, “because we see employment numbers very solid month to month, and the unemployment rate has been declining”.
This, in turn, will most likely affect consumer confidence, which has failed to show positive results this year.
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Meanwhile, consumer sentiment statistics also went down for the month of July, as the University of Michigan consumer sentiment index dropped from 96.1 in June to 93.1 in July.
