(Bloomberg) — Wages and salaries in the U.S. rose in the second quarter at the slowest pace on record, dashing projections that an improving labor market would boost pay.
The 0.2 percent advance was the smallest since records began in 1982 and followed a 0.7 percent increase in the first quarter, the Labor Department said Friday. The agency’s employment cost index, which also includes benefits, also rose 0.2 percent in the second quarter from the prior three months.
Federal Reserve Chair Janet Yellen and her colleagues are counting on rising wages to boost the economy and bring inflation closer to their 2 percent goal. The setback may prompt some officials to call for a delay in raising interest rates for the first time since 2006.
“You’re really not building up the tightness that everyone says,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York, who projected the overall ECI would rise 0.5 percent, among the lowest estimates. “For the people who were saying the Fed’s got to raise rates in September, this is a shock,”
The yield on the benchmark 10-year note dropped to 2.21 percent at 8:47 a.m. in New York from 2.26 percent late on Thursday as investors weighed what impact it would have on Fed policy. Stock-index futures rallied after the report.
The median forecast of 57 economists surveyed projected a 0.6 percent increase for the total ECI index. Last quarter’s reading was lower than all estimates, which ranged from increases of 0.4 percent to 0.8 percent. 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 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.
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 after climbing 2.6 percent year-over-year in the first quarter.