Rising wages boost USA labor costs in third quarter

Contractors work on townhouses under construction in Milpitas California U.S. on Thursday Oct. 25 2018. MUST CREDIT Bloomberg

Contractors work on townhouses under construction in Milpitas California U.S. on Thursday Oct. 25 2018. MUST CREDIT Bloomberg

The Fed is not expected to raise rates at its policy meeting next week, but economists believe October's strong labor market data could see the USA central bank signal an increase in December. A separate report Wednesday showed that wages and salaries for private-sector workers rose 3.1 percent from a year earlier.

The smallest wage growth, 1.6 percent, was in natural resources, construction, and maintenance jobs. The Conference Board, which produces the gauge, attributed the positive assessment to a strong labor market.

That may be one reason employers who can find qualified candidates have to pay them more.

Real income has been lagging behind economic growth for years. The jobs market is viewed as being close to or at full employment, with the unemployment rate at a near 49-year low of 3.7 percent.

Payroll processor ADP said Wednesday that employers added jobs in manufacturing, retail, and professional services such as engineering. "This is about the gradual tightening in the labor market finally forcing employers to pay more", said Ian Shepherdson, chief economist at Pantheon Marcoeconomics.

Last month, employment in the leisure and hospitality sector increased by 42,000 jobs after being unchanged in September. With unemployment at 3.7 percent, the uptick in wage growth suggests that businesses are ramping up efforts to expand their payrolls with greater compensation.The ADP national employment report, also released Wednesday, showed private businesses adding 227,000 jobs in October, beating economists' expectations for an increase of 189,000. That followed a 2.9 percent gain in the year to June. There are a record 7.14 million open jobs. Rising wages should help support consumer spending and soften the hit to the economy from a softening housing market and stalling business investment.

Economists polled by Reuters had forecast the ECI rising 0.7 percent in the July-September quarter.

Prices also have been rising in the past year, especially for gas and rent, but wages are outpacing inflation by a significant margin. Payrolls rose by 134,000 jobs in September, the smallest gain in a year, after Hurricane Florence drenched North and SC, weighing on restaurant and retail employment.

The Fed is not expected to raise rates at its meeting next Wednesday, but economists believe strong labour market data could see the US central bank signal an increase in December.

"I suspect that by mid-2019, labour compensation gains will be at levels that would worry the Fed members", said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. The services sector did the most hiring, with the biggest expansion coming in trade, transportation, and utility companies.

At the same time, overall benefits rose at a slower pace in the third quarter, increasing 0.4 percent from the prior period, following a 0.9 percent gain. This article is strictly for informational purposes only.

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