Wages and Benefits Rise 3.4%, Fastest Growth in 5 Years

Brisk economic growth in 1998 pushed up Americans’ wages and benefits by 3.4%, the fastest growth in five years and a slight improvement over 1997.

The gain reported Thursday by the Labor Department in its employment cost index marked the third consecutive year of improvement. Wages and benefits rose 3.3% in 1997, 2.9% in 1996 and 2.7% in 1995.

At the same time, inflation has been decreasing, so workers’ purchasing power has shown significant gains.

But not everyone saw a healthy increase in compensation last year. Some regions and occupations recorded considerably slower growth, reflecting spillover from the world economic slump and other factors.

Computer programmers on the West Coast, real estate agents and Wall Street traders were among those who fared the best, while factory workers in the Midwest and minimum-wage earners overall saw lackluster gains.

In manufacturing, wages and benefits grew a subdued 2.7%, and in health services, compensation was up a minuscule 0.9%. Retail trade compensation increased 3%, although in the final three months of the year it was down 0.2%

Compensation increased a robust 5% at public utilities, reflecting severance payments resulting from deregulation, particularly at telephone companies. In finance, insurance and real estate, it rose 5.9%, reflecting record home sales and the expanding mutual fund industry.

By region, compensation grew 4.9% in the West but went up just 2.6% in the South. It rose 3.3% in both the Northeast and the Midwest.

The same numbers that cheer employees have raised concern at the inflation-wary Federal Reserve and among businesses, particularly manufacturers, which face a profit crunch as they attempt to compete against firms operating in Asian and Latin American countries with devalued currencies.

Excluding benefits such as health insurance, the increase in wages and salaries slowed slightly in 1998, to 3.7%, compared with 3.8% in 1997. Benefit costs, however, increased 2.6%--the strongest pace in four years--up from 2.1% in 1997.

In the fourth quarter, wage and benefit costs rose 0.7%, compared with 1% in the July-September period. Wages and salaries were up 0.7%; benefits rose 0.6%.

Separately, the Labor Department said seasonally adjusted first-time applications for unemployment benefits dropped sharply last week for the second week in a row, after shooting up during late December and early January.

A five-week low of 301,000 claims were filed, down from 316,000 the previous week and 360,000 the week before that. A department analyst said that after some difficulty adjusting the statistics for seasonal fluctuation, the total appears to have returned to a level closer to the longer-term trend.

The Commerce Department said orders to U.S. factories for big-ticket durable goods jumped 1.9% in December to a seasonally adjusted $193 billion, ending the weakest year since the last recession on a strong note.

For the year, orders for durable goods--items expected to last three or more years--rose just 3.5%, the smallest gain since orders fell in 1991 and a marked deceleration from 1997’s 7.1% increase.

Federal Reserve policymakers, who meet next week to discuss whether to change interest rates, are sorting through conflicting trends in the economy, including strong labor demand, which pushed the 1998 unemployment rate to a 29-year low of 4.5%, and weakness from overseas, which is hurting manufacturing.

Low interest rates, along with the strong wage and benefit increases, have fueled robust consumer spending, more than compensating for waning demand abroad. But many economists are looking for more moderate economic growth this year and believe compensation costs will not accelerate further.