Cost of Pay, Benefits Rose Just 2.8% in Year, Report Finds

The cost of most workers’ pay and benefits rose only moderately over the last year, even though employers have had to scramble to find workers in many parts of the country because of tight labor markets, according to a Labor Department report released Tuesday.

The department said its employment cost index for civilian workers, which tracks changes in wages, salaries and benefits, rose 2.8% in the 12 months ended last month, a bit less than the 2.9% increase in the previous year.

The report confirmed that the nation’s low unemployment rate--it averaged 4.9% during the April-June period--is not pushing companies’ labor costs in a way that adds to inflationary pressures, analysts said.

Meanwhile, the Conference Board reported that its consumer confidence index fell slightly this month, to 126.5 from a June reading of 129.9, with drops both in how American households regard current economic conditions and what they expect in the future.

However, Lynn Franco, associate director of the group’s Consumer Research Center, said the decline was not a sign that the economy is in any trouble.

“Despite the slight decline in consumer confidence this month, both the present situation and expectations indexes are at historically high levels,” she said.

With consumer prices up only 0.1% in each of the last four months, and economic growth moderating after a very strong first quarter, the steady rate of increase in the employment cost index makes it highly unlikely that the Federal Reserve Board will raise interest rates at its next policymaking session Aug. 19.

“For two years we have been chugging along with compensation up about 2.8%, benefits up 2% and wages and salaries up 3.2%,” said Mickey Levy, chief financial economist for NationsBank in New York. “Labor costs are not only rising at a moderate pace, they aren’t impacting production costs. Instead, they are merely rising along with productivity.

“Businesses are in a highly competitive environment and they are trying to maintain their profit margins, so we shouldn’t be at all surprised that compensation gains have remained moderate,” Levy said.