US employment costs post smallest gain on record in second quarter

Commissions and bonuses helped lift worker compensation at the start of the year.

Wages and salaries, which account for 70% of employment costs, rose 0.2% in the second quarter, also the smallest increase on record.

The dollar, which has been on a strong run-up in the past weeks, shed 0.5 percent as the euro bought $1.0984 and slipped 0.2 percent against the yen at 123.91 yen.

The employment cost index rose 0.2% in the second quarter compared with a 0.7% pace in the previous three months, registering an all-time low since record began in 1982.

In other words, today’s report showed the smallest quarterly gain in wages and benefits ever recorded.

The Federal Reserve watches the employment cost index closely for signs that healthy hiring is pushing up wages.

But the latest slowdown suggests slack remains in the jobs market and could bolster the case for officials to wait longer to raise rates.

The report from BLS measures not just salary and hourly wage earnings, but the employer spending on benefits as well.

Private sector wages and salaries were up 0.2% after gaining 0.7% in the prior quarter.

At 5.3 percent, the unemployment rate is close to the 5.0 percent to 5.2 percent range that most Fed officials consider consistent with full employment.

Consumer prices were up just 0.1 percent over the year through June, as measured by the Consumer Price Index, thanks in large part to the collapse of oil prices over the past year. Just before the recession, that figure stood at 8.4 per cent.

The unexpectedly smaller rise reported by the Labour Department on Friday will probably not dampen speculation that the Federal Reserve is set to raise interest rates later this year. That was the smallest gain since the series started in the second quarter of 1982 and followed a 0.7 percent rise in the first quarter.

“The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labour market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term”, the central bank said in a policy statement. Economists had expected a 0.6 percent increase in total compensation for the quarter. Compensation in the goods producing sector rose a solid 0.7 per cent after increasing 0.5 per cent in the first quarter.