Labor Costs Show Small Rise in 3rd Quarter

U.S. labor costs continued to rise at a subdued pace in the third quarter, the government reported Tuesday, but consumer confidence slumped this month--signs inflation is likely to remain restrained as growth slows.

Pay and benefits as measured by the Labor Department’s employment cost index rose a seasonally adjusted 0.8% during the three months ended Sept. 30. That rise is identical to the one for the second quarter.

Separately, the business research group known as the Conference Board said consumer confidence, an important measure of consumers’ propensity to spend, fell 6.9 points in October to 123.3--a much sharper drop than had been expected.

However, the unemployment rate remains near a quarter-century low, raising some concern that companies may start raising prices if labor costs erode profit margins. A significant threat of higher inflation would persuade the Federal Reserve Board to raise interest rates in an effort to cool an overheating economy.

Jittery investors will be watching for Fed Chairman Alan Greenspan’s latest views on the economy when he testifies before Congress today.

With the economy this year creating an average of 226,000 jobs a month and a September unemployment rate of 4.9%, “it has to give anyone caution about how long this can be sustained,” Fed Vice Chairman Alice Rivlin said.

In the data-processing and computer industries, for example, “companies simply cannot find enough skilled programmers and technicians, which is bidding up wages and salaries,” said Mark Vitner, an economist at First Union Corp. in Charlotte, N.C. “Retailers are also having a hard time keeping fully staffed because job growth is so strong in many other higher-paying industries.”

Tuesday’s government report shows a slow upward creep in wages and benefits that companies have so far managed to meet through improved productivity. During the year ended in September, compensation rose 3%, the most for any four quarters in nearly three years.

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Consumer Confidence

From a monthly survey of 5,000 U.S. households. Index; 1985=100.

Sept.: 123.3

Source: Conference Board