Wages and benefits barely grow, but consumer spending jumps
A labor market flooded with unemployed workers continued to keep a lid on wages and benefits in the last three months, even as consumers ramped up spending.
Wages and salaries grew just 0.3% in the third quarter this year from the previous quarter, according to a government employment cost index. Benefits increased 0.1%, the slowest growth rate since 1999, according to employment cost data released Friday by the U.S. Labor Department’s Bureau of Labor Statistics.
“This report matches well with the picture of a U.S. economy slowly treading forward and employment making sloth-like progress,” Gregory Daco, principal U.S. economist for IHS Global Insight, wrote in a note.
“With the unemployment rate at 9.1%, ongoing labor market slack should continue to put downward pressure on employment costs,” he said.
Stagnant wage growth is good news for employers but bad news for workers: Real disposable household income fell 1.7% in the third quarter. That’s the biggest drop since the third quarter of 2009, Daco said.
Despite the moribund income levels, people are spending again.
Consumer spending in September rose a surprising 0.6%. The savings rate dropped last month to 3.6% of after-tax income. That’s the lowest level since 2007; the savings rate was 5% to 6% during most of the last two years.
For the fiscal year that ended Sept. 30, total compensation — which includes benefits — grew 2% from the previous year. Wages and salaries grew 1.6%, while benefits rose 3.2%, according to the bureau’s data.
Overall, annual compensation was dragged down by flat salaries for state and local government workers. Their pay and benefits increased just 1.5% over the year and were flat over the quarter, the slowest growth since the government started collecting such data in 1982. Government benefits rose just 0.3% in the third quarter from the previous quarter — the slowest growth since at least 2001, and well below quarterly increases in the early part of the decade.
“State and local government is in the process of a fundamental restructuring which has already taken place in most of the private sector,” said David Shulman, senior economist at the UCLA Anderson forecast.
The data came a day after California Gov. Jerry Brown put forward a plan to reform the state’s pension system that includes raising the retirement age for most future public workers from 55 to 67.
The private sector didn’t do much better.
Compensation grew just 0.4% in the quarter, after rising 0.8% the previous quarter. It grew fastest in financial and insurance services and in installation and repair. It fell 5.6% in aircraft manufacturing and dropped 0.1% in administration and support.
Total compensation for the year grew the fastest in the Detroit area — 4.9% from the same period last year. It rose just 1.9% in the Los Angeles area and 2.9% in the Phoenix area.
Excluding benefits, wages and salaries grew the fastest in the Minneapolis region over the year, 2.5%, followed closely by Boston and Houston.
Annual wages and salaries grew the slowest in Los Angeles, at 1.3%, and Atlanta, at 1.2%.
Some unemployed workers said they would rather have a low-paying job than no job at all. Trained as a welder, Jecenia Rodriguez of Dos Palos, in the Central Valley, has been out of work for two years and has become accustomed to applying for minimum-wage jobs.
“I’ll do anything, as long as it’s legal,” she said.
