U.S. Employment Costs Rose Less Than Expected in Second Quarter

(Bloomberg) -- U.S. employment costs rose less than estimated in the second quarter as worker pay raises held steady while benefit gains decelerated, suggesting inflation pressures remain muted.

The employment cost index, a broad gauge monitored by the Federal Reserve, climbed 0.6% from the prior quarter, the slowest increase since the end of 2017, according to Labor Department released data Wednesday. The gauge increased 2.7% from a year earlier, also a deceleration.

Key Insights

• The report shows employers remain hesitant to offer greater wage gains and more generous benefits, even in a strong labor market, suggesting cost pressures within companies are muted.
• Compensation gains were broad-based across sectors, though there was some deceleration in service-providing industries, which slowed to a 0.5% pace, the weakest since 2016.
• While the headline index is weaker than the projected 0.7% rise seen in Bloomberg’s survey, it’s unlikely to change anything for Fed policy makers expected to lower interest rates later Wednesday for the first time in a decade.
• The data suggest some potential weakness ahead of the government’s monthly employment report due Friday. Economists expect it will show average hourly earnings growth held at a 3.1% annual pace in July as wage pressures remained steady. That gauge has cooled from a 3.4% pace in February that was the highest reading of the economic expansion.

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• Wages and salaries for private workers rose 3% from a year earlier, about in line with prior quarters.
• The Fed’s preferred measure of underlying inflation showed signs of firming toward the central bank’s target Tuesday, as the core personal consumption expenditures price gauge rose at a 2.5% annualized rate over the past three months.
• The government’s quarterly ECI reading covers employer-paid taxes such as Social Security and Medicare along with other benefits.

--With assistance from Chris Middleton.

To contact the reporter on this story: Reade Pickert in Washington at epickert@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Jeff Kearns

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