Wages, Benefits Rise at 3.5% Rate, U.S. Says


American workers’ wages and benefits rose 3.5% in the year ended last month, the largest gain since 1993, the Labor Department reported Thursday.

Until the beginning of last year, compensation had remained fairly flat during an otherwise broad expansion of the economy. The rise in compensation is now accelerating--especially for workers in industries such as financial services and business consulting. Not only have their paychecks been getting bigger, but inflation has come down so the bigger paychecks provide more real buying power.

That added buying power, along with the wealth created by the soaring stock market, is a key reason the U.S. economy has been booming.

Consumers have been on a spending spree, with new motor vehicle sales running above 15 million a year and homeownership hitting record levels. On Thursday, the Commerce Department said new home sales set another record last month, rising 3.8% to an annual rate of 935,000 units, up from 901,000 in May, the previous record.


Analysts credited high consumer confidence, large gains in real incomes, the strong stock market and low mortgage interest rates for the exceptionally strong housing market. Housing prices, though, have not risen much. The median price of new homes sold across the country last month was $145,000, the same as a year earlier, the Commerce Department said.

The robust wage and spending increases, however, have not been enough to shake off the negative effect on the U.S. economy of financial turmoil in Asia. In a separate release due out today, the Commerce Department is expected to report that U.S. economic growth came either to a standstill or staged a small retreat in the April-through-June period.

Even though consumers continued to boost their spending and businesses added to their purchases of equipment last quarter, a big rise in the nation’s trade deficit and business spending for stocks of unsold goods likely dragged down growth in the gross domestic product, analysts predicted.

Economists suspect the nation is at the beginning of a period of slower growth. Although unemployment would likely rise as growth slows, workers’ real wages should keep going up for some time to come, analysts said.


Thursday’s figures on workers’ pay were part of the Labor Department’s employment cost index, which tracks employers’ costs for wages and salaries and fringe benefits as well as their share of Social Security taxes. Many economists and government policymakers regard the ECI as the best measure of changes in labor costs, which are often linked to inflation.

The overall ECI, covering wages, salaries and benefits for workers on private industry and state and local government payrolls, rose 3.5% in the year ended last month, up from 2.8% for the 12 months ended in June 1997.

Wages and salaries were up 3.8% since June 1997, compared to a 3.2% increase in the prior year. Benefit costs increased 2.4% in the latest period, up from 2% the previous year.

“The ECI figures confirm that tight labor markets are leading to somewhat higher total compensation,” said Dana Saporta of Stone & McCarthy, a research firm. The report “suggests that the moderation in benefits, which has held down overall compensation costs in the past, has about run its course.”



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