WASHINGTON — Pay and benefits for America’s workers grew more slowly in the April-June quarter than in the first three months of the year, a trend that could keep price pressures in check and encourage the inflation-fighters at the Federal Reserve.
Compensation as measured by the government’s Employment Cost Index rose 0.9% in the second quarter, down from a 1.2% increase in the previous quarter, the Labor Department said Wednesday. The figure matches last year’s fourth-quarter reading as the slowest in about two and a half years. Compared with the same quarter a year earlier, compensation growth was 4.1%, a slight drop from 4.2% in the first quarter.
Higher wages and benefits are good for employees, but slower pay growth will likely reassure Fed officials that inflation is steadily falling back to their 2% target. Rapid wage growth can lead many businesses to raise their prices to offset the higher labor costs.
Yet inflation is also cooling, so wage and benefit growth, adjusted for price changes, actually accelerated. Inflation-adjusted compensation rose 1.1% compared with a year ago in the second quarter, up from 0.8% in the previous three months.
The Fed is expected to keep its key short-term rate unchanged after its latest policy meeting concludes later Wednesday. Yet Fed officials are also likely to signal that the first rate cut in four years is on the horizon, probably at its next meeting in September.
There were other signs that the job market is cooling Wednesday. Payroll processor ADP says its count of U.S. jobs, excluding government, rose 122,000 in July, down from a 155,000 increase in June. Its measure of wages increased from a year earlier by a solid 4.8%, but that was still the slowest in three years.
“With wage growth abating, the labor market is playing along with the Federal Reserve’s effort to slow inflation,” Nela Richardson, chief economist at ADP, said. “If inflation goes back up, it won’t be because of labor.”
In recent years, there has been a noticeable trend of slow growth in paychecks for many workers across various industries. This phenomenon has raised concerns among economists and policymakers, as it may indicate a continued cooling of inflation in the economy.
One of the key factors contributing to the slow growth in paychecks is the overall sluggish pace of economic growth. While the economy has been steadily expanding since the Great Recession, the rate of growth has been relatively modest compared to previous periods of economic expansion. This has limited employers’ ability to increase wages significantly, as they are facing pressure to keep costs down in order to remain competitive in a global market.
Additionally, the labor market has become increasingly competitive, with a growing number of workers vying for a limited number of job opportunities. This has given employers more leverage in negotiations with employees, making it difficult for workers to demand higher wages. As a result, many workers are seeing only marginal increases in their paychecks, even as the cost of living continues to rise.
Furthermore, technological advancements and automation have also played a role in limiting wage growth. As companies invest in new technologies to increase efficiency and reduce costs, they may be able to replace workers with machines or software programs that can perform tasks more quickly and accurately. This can lead to job displacement and wage stagnation for workers who are unable to adapt to these changes.
The slow growth in paychecks may also be a reflection of broader economic trends, such as low inflation and weak consumer spending. Inflation has remained relatively low in recent years, which means that the prices of goods and services are not rising as quickly as they have in the past. This has put downward pressure on wages, as employers may not feel the need to increase salaries in order to keep up with rising costs.
Additionally, weak consumer spending has also contributed to the slow growth in paychecks. When consumers are not spending as much money, businesses may be less inclined to raise wages in order to attract customers. This can create a vicious cycle where low wages lead to low consumer spending, which in turn leads to even lower wages.
Overall, the slow growth in paychecks is a concerning trend that may indicate a continued cooling of inflation in the economy. While there are a variety of factors contributing to this phenomenon, it is important for policymakers and employers to consider ways to address wage stagnation and ensure that workers are able to earn a fair and livable wage in today’s economy.
