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Worker pay rose at a slower pace in fourth quarter

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(Bloomberg) — Wages and salaries in the U.S. rose at a slower pace in the fourth quarter, indicating workers have limited success bargaining for pay increases even as the labor market improves.

The 0.5 percent increase in worker pay followed a 0.8 percent advance 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 previous three months.

“We’re going to view this as kind of a temporary blip and as labor-market slack dissipates, we would expect wage growth to accelerate,” said Brittany Baumann, a New York-based economist at Credit Agricole CIB, whose firm correctly projected the rise in the employment cost index.

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Bigger paychecks have eluded American workers even as employers added more positions in 2014 than at any time in the last 15 years. At the same time, with the jobless rate approaching the range Federal Reserve policy makers say is consistent with full employment, companies may soon have to consider higher wages to attract and retain workers.

The U.S. economy expanded 2.6 percent in the fourth quarter after a 5 percent advance in the prior three months, another report showed. The slowdown reflected a decline in business spending on equipment and a decrease in military outlays. Consumer purchases increased at a 4.3 percent pace, the fastest since the first quarter of 2006.

The index measures not only costs of wages and benefits, but also employer-paid taxes such as Social Security and Medicare.

Wages and salaries typically account for about 70 percent of total employment expenses. The ECI data will help shape views of the labor market after the December employment report showed average hourly earnings fell 0.2 percent from a month earlier, the most in records back to 2006.

The ECI tracks the same job over time, so it removes shifts in the mix of workers across industries that is one of the drawbacks of the Labor Department’s figure on hourly earnings.

All workers

Wages of all employees, including government workers, increased 2.1 percent from the same quarter in 2013, matching the year-over-year rate in the third quarter.

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

Benefits costs for all workers include some bonuses, severance pay, health insurance and paid vacations. Compared with the same three months in 2013, benefit expenses were up 2.6 percent.

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Company costs for health benefits advanced 2.4 percent in the fourth quarter from the same period in the previous year.

As of January, most companies with 100 or more workers must cover 70 percent of their employees with health care insurance, as required under the Patient Protection and Affordable Care Act (PPACA) employer mandate. The mandate won’t apply to most businesses with 50 to 99 employees until 2016.

Health costs

The added compensation costs probably will mean some businesses will see revenues strained, Peter Bensen, chief financial officer of Oak Brook, Ill.-based McDonald’s Corp., said on a Jan. 23 earnings call.

“We’ve got national health care impacting 2015 for the first time,” Bensen said. “Especially in this first half of the year, U.S. margins will continue to be a little bit under pressure.”

See also: Employers applaud employer mandate bill.

The number of available positions at U.S. employers climbed to 4.97 million in November, the most since January 2001, Labor Department data showed earlier this month. There were 1.82 jobless Americans per opening, down from 2.62 in November 2013.

The latest figure is below the 2-to-1 threshold that typically leads to larger pay increases in about six months as employers compete for a shrinking talent pool, according to research by economists at UBS Securities LLC.

A net 17 percent of managers at small businesses said in December that they’ll boost wages, the most since September 2007, according to National Federation of Independent Business survey data.

Payroll gains

Wages were one disappointing element in an otherwise brightening jobs market last year. Employers added an average 246,000 workers a month to payrolls, the best performance since 1999. The jobless rate sank to 5.6 percent in December, the lowest since June 2008, and close to the 5.2 percent to 5.5 percent that the Fed has defined as full employment.

A Bloomberg survey of economists shows workers will see higher wages this year as the job market tightens. Hourly earnings for employees on company payrolls will advance 2 percent to 3 percent on average, according to 61 of 69 economists surveyed Jan. 5-7. They climbed 1.7 percent in the year through December.

At the same time, the job market still has pockets of weakness. The share of jobless who have been out of work for 27 weeks or longer was 31.9 percent in December, more than twice the average in records dating to 1948.

Fed Chair Janet Yellen said last year at the central bank’s annual conference in Jackson Hole, Wyoming, that wage growth is understandably low because businesses that avoided trimming paychecks during the downturn are waiting longer to increase them.


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