Employment costs post modest gain in 3rd quarter

By  | 

WASHINGTON – Wages and benefits paid to U.S. workers rose by a moderate amount in the third quarter, the government said Friday, matching analysts' estimates.

The Labor Department reported that employment costs for civilian workers increased by a seasonally-adjusted 0.7 percent for the June-September period, the same increase as in the previous two quarters.

That level of growth is the lowest since wages and benefits rose by 0.6 percent in the first quarter of 2006, and provides evidence that the weak job market is limiting the ability of employees to demand raises and more generous benefits.

Wages and salaries rose by 0.7 percent in the third quarter, the same level as the previous period, while benefits increased by 0.6 percent, also matching the previous quarter, the department said.

Separately, the Commerce Department said personal spending dropped 0.3 percent in September, the biggest drop since June 2004, as consumers cut back sharply in the face of a struggling economy.

The Labor Department's employment cost report will likely reassure Federal Reserve policymakers that pay and benefits aren't rising sharply enough to create inflation concerns.

Federal Reserve Chairman Ben Bernanke and his colleagues were worried about inflation earlier this year due to rapid increases in the price of oil and many other commodities, but more recently they have concluded that the slowing economy will keep such pressures in check. That has allowed the Fed to cut its target interest rate this month to 1 percent from 2 percent.

On Wednesday, the Fed's policymaking committee cut the rate by one-half percentage point, and said that it "expects inflation to moderate in coming quarters to levels consistent with price stability."

The Fed pays close attention to employment costs since they make up the largest part of cost of the products and services that consumers buy.

Given the weak labor market, workers are likely more focused on keeping their jobs than demanding better pay. The struggling economy has led to increased layoffs, as companies cut 760,000 jobs in the first nine months of this year.

That increased the unemployment rate to 6.1 percent last month from 4.9 percent in January.

Many companies have announced mass layoffs in recent weeks, including Whirlpool Corp., drugmaker Merck & Co. Inc., and Motorola Inc.