U.S. labor cost growth slows, but labor market remains tight

  • Employment cost index rises 1.0% in the fourth quarter
  • Wages, salary increase 1.0%; up 5.1% year on year
  • The consumer confidence index falls to 107.1 in January
  • House price inflation slows further in November

WASHINGTON, Jan 31 (Reuters) – U.S. labor costs rose at their slowest pace in a year in the fourth quarter as wage growth slowed, giving the Federal Reserve a boost in its fight against inflation.

There was more encouraging news on inflation, with other data on Tuesday showing house price growth slowing significantly in November. The reports were published as Fed officials began a two-day policy meeting. The US central bank is expected to raise its policy rate by 25 basis points on Wednesday, again slowing the pace of interest rate increases.

“The prospect of the labor market contributing to further inflation is now diminishing, something the Federal Reserve should consider,” said Nick Bunker, head of economic research at the Indeed Hiring Lab.

The Employment Cost Index, the broadest measure of labor costs, rose 1.0% in the last quarter, the Labor Department said. That was the smallest advance since the fourth quarter of 2021 and followed a 1.2% gain in the July-September period.

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Economists polled by Reuters had forecast the ECI to rise 1.1%. Labor costs increased 5.1% year over year after climbing 5.0% in the third quarter. They are still higher than the 3.5% that Fed officials and economists consider consistent with tame inflation. The Fed has an inflation target of 2%.

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The ECI is widely viewed by policymakers and economists as one of the best measures of labor market slack and a predictor of core inflation because it adjusts for changes in the composition and quality of jobs.

The Fed raised its policy rate 425 basis points last year from near zero to a range of 4.25%-4.50%, the highest rate since late 2007. Although the central bank has moved to smaller rate hikes, it is unlikely the escalation will end. monetary policy.

The Fed’s “Beige Book” report this month described the labor market as “continued tight,” noting that “wage pressures remained elevated across the board” in early January, although five reported Regional Reserve Banks that these pressures have eased somewhat.

Although annual growth in average hourly earnings has improved in the Labor Department’s monthly employment report, wages remain high. The Atlantic Fed wage tracker also eased, but remained elevated in the fourth quarter.

The temperature of the labor market was highlighted in a separate Conference Board report that showed the so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to find, widened to 36.9 in January from 34.5 in December.

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This measure relates to the unemployment rate from the Department of Labour, and the increase was consistent with tight conditions in the labor market. The government will publish details of job openings for December on Wednesday. 10.5 million jobs were opened on the last business day of November.

US stocks were trading higher. The dollar was steady against a basket of currencies. US Treasury prices rose.

PRICE OF COOLING HOUSES

“Labor cost growth should not be dismissed as benign labor cost growth,” said Sarah House, senior economist at Wells Fargo Securities in Charlotte, North Carolina. “The labor market remains very tight. While the slowdown in labor costs is welcome, it is too early to confirm that it will remain there for the long term.”

Wages and salaries rose 1.0% in the last quarter, also the smallest gain since the fourth quarter of 2021, after rising 1.3% in the third quarter. They were up 5.1% year on year after rising by the same margin in the previous quarter.

Private sector wages rose 1.0%, slowing from a 1.2% advance in the third quarter. Private industry wages increased 5.1% year on year after rising 5.2% in the July-September quarter.

The moderation in wage growth was more pronounced in the leisure and hospitality sector, where wages and salaries gained 0.9% after a 1.8% increase in the third quarter. Employment in this industry is still below pre-pandemic levels.

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But wages in the financial activities industry increased as did those in wholesale trade. Construction wages rose steadily.

State and local government wages climbed 1.0% last quarter after rising 2.1% in the third quarter.

But higher inflation continued to eat into the purchasing power of consumers. Inflation-adjusted wages for all workers fell 1.2% year over year in the fourth quarter.

Profits rose 0.8% last quarter after increasing 1.0% in the third quarter. They were up 4.9% year on year.

The Fed’s rate hiking cycle, the fastest since the 1980s, is dampening home price inflation.

The S&P CoreLogic Case-Shiller national home price index, covering all nine US census divisions, rose 9.2% year over year in November, pulling back from October’s 10.7% gain.

Home prices as measured by the Federal Housing Finance Agency rose 8.2% in the 12 months through November after climbing 9.8% in October. However, a continued shortage of homes for sale is likely to prevent a sharp decline in house prices.

“Inventory shortages, no forced sales and a downturn in mortgage rates are helping to keep yields under control,” said Robert Kavcic, senior economist at BMO Capital Markets in Toronto.

Reporting by Lucia Mutikani; Editing by Andrew Heavens, Andrea Ricci and Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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