Rise in U.S. employment costs slows in second quarter

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The numbers: The employment cost index rose 1.3% in the second quarter, down slightly from a 1.4% gain in the January-March quarter, the Labor Department said Friday. Economists polled by the Wall Street Journal had forecast a 1.1% increase.

The slight decline masked rising wage pressures in the economy.

Over the past year, the ECI rose at a 5.1% rate, compared with a 4.5% rate in the first quarter.

Key details: Wages rose 1.6% in the second quarter, up from 1.3% in the prior three months. Wages make up 70% of total compensation. Year-over-year, wages rose at a 5.7% rate, compared with a 5% rate in the first three months of the year.  

Benefits increased 1.3% in the April-June quarter after a 1.9% gain in the prior quarter . They account for the rest of worker compensation.  Year-on-year, benefits rose at a 5.3% rate, up from 4.1% in the first quarter.

Big picture: Federal Reserve Chairman Jerome Powell has flagged the employment cost data as key for policymakers as they raise interest rates to try to quell inflation. Labor shortages have been forcing businesses to raise wages and this puts pressure on other prices.

Steven Ricchiuto, chief economist at Mizuho Securities USA, said that an annual gain of 3.7% in the employment cost index would be consistent with inflation running at the Fed’s 2% target.

Market reaction: Stocks DJIA, +0.97% SPX, +1.42% were set to open higher Friday on strong earnings reports.

This article was originally published by Marketwatch.com. Read the original article here.

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