Bloomberg News

U.S. Employment Costs Rose Less Than Forecast in Third Quarter

October 28, 2011

Oct. 28 (Bloomberg) -- Employment expenses in the U.S. rose in the third quarter at the slowest pace in two years, indicating inflation will stay subdued.

The 0.3 percent rise in the employment cost index from July through September was less than projected and followed a 0.7 percent gain in the prior three months, Labor Department figures showed today. Economists forecast a 0.6 percent increase, according to the median estimate in a Bloomberg News survey. Wages climbed at the slowest pace in a year, while benefit costs were the tamest since 1999.

With 14 million people unemployed and a jobless rate at or above 9 percent for the last 30 months, workers have limited scope to demand pay increases. The Federal Reserve said in its latest survey of regional economies that wage pressures remained “subdued” and “most other cost pressures moderated” last month.

“Labor costs remain well-contained, as we would expect during a period of high unemployment,” Robert Dye, chief economist at Comerica Inc. in Dallas, said before the report. “That factors positively for corporate profits, but it also suggests that wages are suffering, and that is contributing to stagnate real disposable income.”

Estimates of second-quarter employment costs ranged from a increases of 0.4 percent to 0.8 percent, according to the survey of 51 economists.

The employment cost index measures the expense to companies of wages, benefits and employer-paid taxes such as Social Security and Medicare.

Wages and Salaries

Wages and salaries, which account for about 70 percent of company expenses, climbed 0.3 percent in the third quarter after a 0.4 percent gain, today’s Labor Department report showed. Wages increased 1.6 percent from the same quarter of 2010.

Benefit costs for all workers, which include some bonuses, severance pay, health insurance and paid vacations, increased 0.1 percent last quarter, the least since the first three months of 1999, after jumping 1.3 percent in the second quarter.

Benefit expenses for private industry climbed 0.1 percent and were up 3.3 percent from the same period a year earlier. The 12-month change reflected a 3.4 percent rise in health care costs.

Wages for state and local government workers fell 0.2 percent, the biggest decrease since record-keeping began in 1982. Benefit costs among state and local government employees rose 0.3 percent last quarter after a 0.5 percent increase. Total compensation was unchanged from the previous quarter, also the lowest since the series began.

Union Pacific

Some companies saw large gains in labor-related costs that they expect to ease in the coming year. Union Pacific Corp., the biggest railroad in North America by sales, had a 9 percent increase in compensation and benefits costs in the third quarter from a year earlier, chief financial officer Robert Knight told a Oct. 20 conference call.

“Over half of the increase in expenses can be attributed to inflationary pressures” linked to pension costs, health and welfare expenses, he said. “Looking forward, our initial planning for 2012 would indicate that labor inflation should moderate somewhat from 2011 levels.”

“Wage pressures remained subdued,” with exceptions for workers with “specialized skills” or in selected areas, the Fed said last week in its Beige Book summary of conditions in regional economies in September through late October. “Labor market conditions were little changed, on balance.”

--Editor: Vince Golle

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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