Q4 numbers end with a dud for workers

January 30, 2015 10:27 AM

Wages and salaries in the U.S. rose at a slower pace in the fourth quarter, indicating workers have limited success bargaining for pay increases even as the labor market improves.

The 0.5% increase in worker pay followed a 0.8% advance in the third quarter, the Labor Department said Friday. The agency’s employment cost index, which also includes benefits, climbed 0.6% in the fourth quarter from the previous three months.

“We’re going to view this as kind of a temporary blip and as labor-market slack dissipates, we would expect wage growth to accelerate,” said Brittany Baumann, a New York-based economist at Credit Agricole CIB, whose firm correctly projected the rise in the employment cost index.

Bigger paychecks have eluded American workers even as employers added more positions in 2014 than at any time in the last 15 years. At the same time, with the jobless rate approaching the range Federal Reserve policy makers say is consistent with full employment, companies may soon have to consider higher wages to attract and retain workers.

The U.S. economy expanded 2.6% in the fourth quarter after a 5% advance in the prior three months, another report showed. The slowdown reflected a decline in business spending on equipment and a decrease in military outlays. Consumer purchases increased at a 4.3% pace, the fastest since the first quarter of 2006.

Market Reaction

Futures on the Standard & Poor’s 500 Index of stocks remained lower after the reports, falling 0.9% to 2,000.50 at 8:36 a.m. in New York. Yields on 10-year U.S. Treasuries also stayed lower at 1.68%, compared with 1.75% on Thursday.

The median forecast in a Bloomberg survey of 60 economists called for a 0.6% increase in the employment cost gauge. Estimates ranged from gains of 0.3% to 0.8%. The index measures not only costs of wages and benefits, but also employer-paid taxes such as Social Security and Medicare.

Wages and salaries typically account for about 70% of total employment expenses. The ECI data will help shape views of the labor market after the December employment report showed average hourly earnings fell 0.2% from a month earlier, the most in records back to 2006.

The ECI tracks the same job over time, so it removes shifts in the mix of workers across industries that is one of the drawbacks of the Labor Department’s figure on hourly earnings.

All Workers

Wages of all employees, including government workers, increased 2.1% from the same quarter in 2013, matching the year-over-year rate in the third quarter.

Private wages climbed 0.6% in the fourth quarter from the previous three months, when they rose 0.7%. Pay for state and local government workers advanced 0.4%.

Benefit costs for all workers, which include some bonuses, severance pay, health insurance and paid vacations, rose 0.6% for a second straight quarter. Compared with the same three months in 2013, benefit expenses were up 2.6%.

Company costs for health benefits advanced 2.4% in the fourth quarter from the same period in the previous year.

As of January, companies with 100 or more workers must cover 70% of their employees with health care insurance, as required under the Obamacare health overhaul. The mandate won’t apply to small businesses until 2016.

Page 1 of 2
About the Author