Bloomberg News

Employment Costs in the U.S. Increased 0.5% in Second Quarter

July 31, 2012

Employment expenses in the U.S. rose slightly in the second quarter amid high unemployment, presenting little threat that wage pressures will stoke inflation.

The employment cost index increased 0.5 percent, matching the median estimate in a Bloomberg News survey, following a 0.4 percent gain in the prior quarter, Labor Department figures showed today.

With almost 13 million people out of work in the U.S., businesses have been able to avoid raising salaries, while weak consumer demand has blunted the need to increase payrolls. U.S. central bankers have said that slow income growth will help keep inflation at or below their target of 2 percent. The Federal Reserve cut its estimates for 2012 growth last month after a slowdown in hiring, and predicted little progress on unemployment during the rest of the year.

“Wage growth has slowed very sharply. In real terms, we’re actually negative,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York before today’s report. “Consumer fundamentals are not very sound right now. Aggregate demand is softening,”

Bloomberg Survey

Projections from 49 economists ranged from increases of 0.3 percent to 0.8 percent. The employment cost index measures companies’ costs of wages, benefits and employer-paid taxes such as Social Security and Medicare.

The Labor Department on Aug. 3 is expected to report a payroll increase of 100,000 workers, according to a Bloomberg News survey of economists, following an 80,000 gain in June. The pace of hiring probably won’t be enough to reduce the U.S. jobless rate, which has been stuck above 8 percent for more than three years. Federal Reserve policy makers will meet ahead of Friday’s report to decide whether additional stimulus is needed to combat a slowing economy.

Wages and salaries, which account for about 70 percent of total employment costs, rose 0.4 percent in the second quarter, after a 0.5 percent gain in the prior three months, today’s report showed. Wages increased 1.7 percent from the same quarter last year.

For state and local governments, workers’ wages rose 0.3 percent, following a previous-quarter increase of 0.4 percent.

Benefit Costs

Benefit costs for all workers, which include some bonuses, severance pay, health insurance and paid vacations, rose 0.6 percent. Compared with the same three months in 2011, benefit expenses were up 2.1 percent.

Among companies, total compensation costs rose 0.5 percent in the second quarter, compared with a 0.4 percent gain in the prior quarter.

“Employer costs for health benefits decelerated over the year to a 2.4 percent increase, down from the June 2011 increase of 3.6 percent,” the Labor Department said of private industry workers in a news release.

Some companies are preparing for increased labor costs as a result of minimum wage increases and changes in U.S. health care law.

“We are seeing wage pressure in virtually every market around the world,” said Peter Bensen, chief financial officer for McDonald’s Corp. (MCD:US), the world’s largest restaurant chain, based in Oak Brook, Illinois.

“If you go into Europe, not only are our wages increasing, but some of the austerity measures in Europe include additional social charges and additional payroll-type taxes that are putting pressure on the wage rates,” Bensen said on a July 23 earnings call. “And in Asia, a lot has been written about China and the pressure on wages there. So we’re experiencing wage pressure there as well. So, it’s clearly a global phenomenon for us.”

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

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


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