Employers hold wages and salaries in check

Workers at an auto assembly plant in Tennessee. Nationwide, employer compensation costs, which include wages and benefits, rose only 0.4% in the third quarter.
(Erik S. Lesser / European Pressphoto Agency)

WASHINGTON -- U.S. labor costs grew at a slightly more subdued pace in the third quarter, as employers continued to hold the line on payment to workers -- a trend that doesn’t bode well for consumer spending.


Overall, employer compensation costs, which include wages, salaries and benefits, rose a seasonally adjusted 0.4% in the July-September period compared with the second quarter, when those costs increased 0.5%, the Labor Department said Tuesday.

Third-quarter labor costs were up 1.9% from a year earlier, unchanged from the prior four quarters and just a tick above the annual rate of increase in the core consumer price index in recent months.

In the latest quarter, employers picked up their spending for benefits, which jumped 0.7% from 0.4% in the second quarter. But growth in pay trailed, slowing to 0.3% from 0.4% in second quarter.

Costs for benefits in the third quarter were 2.2% higher than a year ago. Wages and salaries, which account for about 70% of overall compensation, were up a more modest 1.6% from the third quarter of 2012.

“The large share of unemployed workers has placed salary negotiating power in the hands of employers,” said Andrew Davis, an economist at Moody’s Analytics. The unemployment rate in October was 7.3%. “Furthermore, firms have remained focused on holding costs in check as they also attempt to turn the corner to stronger expansion,” he said in a note to clients.

The slight deceleration in employers’ compensation increases may be good for companies’ profit margins, and will continue to curb the rate of inflation, helping the Federal Reserve to keep its big bond-buying stimulus program going.

The downside, however, is that with workers not seeing bigger pay increases, many won’t have the income gains to bolster their spending, which is key to economic growth.

Consumer spending in the third quarter showed a lackluster 1.5% increase, the smallest gain in two years, the Commerce Department said earlier this month.


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