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lite.cnn.com - on gopher - inofficial | |
ARTICLE VIEW: | |
/ | |
Americans’ pay gains rose faster than expected so far this year | |
By Alicia Wallace, CNN | |
Updated: | |
10:46 AM EDT, Tue April 30, 2024 | |
Source: CNN | |
It wasn’t just , paychecks did as well. | |
A closely watched measure of labor costs showed that compensation | |
growth accelerated much faster than expected during the first three | |
months of the year, providing an unwelcome data point for Federal | |
Reserve officials looking for inflation pressures to ease. | |
The Employment Cost Index (ECI) rose a seasonally adjusted 1.2% last | |
quarter, faster growth than the , according to Bureau of Labor | |
Statistics data released Tuesday. | |
“This isn’t going to calm any nerves at the Fed,” Scott Anderson, | |
chief economist at BMO Capital Markets, told CNN in an interview. | |
Fed officials are closely monitoring the trajectory of wage gains, as | |
there’s a concern that accelerated compensation growth may serve as | |
an inflation pressure. | |
Higher benefits costs helped drive the index to its biggest quarterly | |
increase in a year: Those shot up to 1.1% from a 0.7% gain the prior | |
quarter, while wage and salary growth was unchanged at 1.1%. | |
On an annual basis, the index that measures changes in wages and | |
benefits held pat at 4.2% for the year ending in March. The heftiest | |
pay gains are occurring in the public sector, where workers are seeing | |
compensation grow 4.8% for the 12 months ended in March. | |
Adjusting for inflation, wages and benefits were up a mere 0.8% | |
annually, ticking down slightly from a 0.9% gain. | |
Economists had expected quarterly growth to come in at 0.9% and for | |
annual gains to slow to 4%, according to FactSet consensus estimates. | |
US stocks fell on the news, with Dow futures down by around 185 points, | |
or 0.5%, in premarket trading Tuesday. Futures were lower by 0.43% on | |
the S&P 500 and 0.46% on the Nasdaq Composite. | |
Still too hot for the Fed’s liking | |
The Fed favors the ECI over other wage trackers, because it provides a | |
more comprehensive measurement of compensation and includes not just | |
wages but also the costs of benefits provided to workers. The index | |
also includes controls for changes in the composition of employment, | |
essentially measuring wage costs for the same jobs over time. | |
Worker compensation spiked during the nation’s economic recovery from | |
the pandemic as consumer demand outstripped the supply of available | |
workers. | |
Annual labor cost gains topped out at 5.1% in the second quarter of | |
2022, a time when inflation rocketed to 40-year highs. Wage gains have | |
since slowed but still remain above historical averages (running in the | |
range of 2% to 3% pre-pandemic) and also above what the Fed wants to | |
see: Central bank officials have indicated that a pace of 3.5% is more | |
consistent with their target of 2% inflation. | |
The Fed is holding its latest policymaking meeting this week and | |
expected to announce Wednesday that interest rates will . Given the | |
batch of to start the year — and, now, higher-than-anticipated wage | |
gains — economists . | |
“The Fed would now need to see a spectacular rollover in payrolls in | |
May and June and equally spectacular inflation numbers in order to cut | |
rates in June,” Ian Shepherdson, chief economist for Pantheon | |
Macroeconomics, wrote in a note issued Tuesday. “That’s possible | |
but the ECI has raised the bar for easing to the point where we now | |
have to look for the first move in September instead.” | |
When good news is bad news | |
While inflation, and now wages, are moving in the opposite direction of | |
what the Fed wants to see; Tuesday’s ECI report is yet another | |
reminder of the pure stamina of the US labor market. | |
“This is really good news for the economy overall and for the | |
resilience and strength of economic growth,” Anderson said. “This | |
will keep real wage growth in the plus column for many workers and will | |
put a floor under consumer spending and keep consumer spending | |
resilient over the next several quarters at least.” | |
A fresh batch of US labor market data will land this week, including . | |
Economists are expecting that the US economy added 230,000 positions, | |
according to FactSet. | |
While some of the biggest monthly gains have been in large industries | |
such as health care, leisure and hospitality, and government, the job | |
growth has remained broad-based and layoffs have remained low. | |
The strength in the labor market and still-high (albeit slowing) wage | |
growth have helped workers see real pay gains and continue their . | |
But while inflation hasn’t stopped consumers from spending, Americans | |
aren’t fans of having to put up with three-plus years of | |
higher-than-typical price hikes. | |
A separate report released Tuesday by the Conference Board showed that | |
consumer confidence retreated in April as it was dampened by elevated | |
food and gas prices as well as concerns about the labor market taking a | |
turn for the worse. | |
The Conference Board’s consumer confidence index fell to a reading of | |
97.0 in April from a downwardly revised 103.1 the month before and | |
landed at its lowest level since July 2022. | |
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