Worker pay rose as forecast in the first quarter, showing the steady drop in unemployment has yet to prompt employers to sweeten paychecks.
The 0.6 percent advance in the employment cost index from the prior three months followed a 0.5 percent increase in the fourth quarter that was smaller than previously estimated, the Labor Department said Friday. Total compensation, which includes wages and benefits, climbed 1.9 percent over the past 12 months, the smallest gain in two years.
Years of impressive employment gains have only led to gradual pay increases that are contributing to more restrained rates of spending and economic growth. Federal Reserve policymakers earlier this week pointed to further labor-market strengthening as a reason to be optimistic about incomes.
“The job market has been, by all counts, pretty strong, but we really haven’t seen the kind of pickup in wage growth that we’d normally get,” said Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida. “There’s still a lot of slack in the job market.”
The advance in the ECI matched the median projection in a Bloomberg survey of economists. Forecasts ranged from increases of 0.4 percent to 0.8 percent. The gauge measures employer-paid taxes such as Social Security and Medicare in addition to the costs of wages and benefits.
Wages and salaries typically account for about 70 percent of total employment expenses. The ECI data help color the outlook for worker pay after the March employment report showed hourly earnings increased 0.3 percent from the prior month. The year-over-year advance was 2.3 percent, the same as in February.
Because the ECI tracks the same job over time, it removes shifts in the mix of workers across industries, which is a shortcoming of the hourly earnings figures.
Wages of all employees, including government workers, advanced 2 percent from the same period in 2015, the smallest 12-month gain in two years.
Private wages rose 0.7 percent in the first quarter from the previous three months, when they increased 0.6 percent. Pay for state and local government workers advanced 0.4 percent.
Benefit costs for all non-government workers, which include some bonuses, severance pay, health insurance and paid vacations, climbed 0.5 percent last quarter and were up 1.2 percent from the same three months in 2015. That was the smallest year-to-year advance since the fourth quarter of 2009.
Fed officials this week said that “a range of recent indicators, including strong job gains, points to additional strengthening of the labor market,” according to a statement at the conclusion of their two-day policy meeting in Washington.
The central bankers expect that a rise in real solid income and buoyant sentiment have the potential of spurring consumer spending.
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