Two new U.S. government reports confirmed that wage growth is slowing and that gains made by workers have been erased by persistent inflation. The latest figures could still help bolster the ever-increasing odds of an interest-rate cut in September by the Federal Reserve.
It reflected a 3.3 percent jump in hourly compensation and a higher-than-expected 2.3 percent boost in productivity. In addition, hours worked increased by 1 percent.
The second-quarter reading was down from the 3.8 percent increase in the first three months of the year, which was revised slightly lower from the initial estimate of 4 percent.
Unit labor costs have risen by just 0.5 percent over the past four quarters, the lowest rate since the third quarter of 2019.
Inflation continues to be a problem for workers, as the BLS report noted that real (inflation-adjusted) hourly compensation growth was zero percent from a year ago.
These figures come one day after the federal statistics agency reported that compensation costs eased in the April–June period.
ECI numbers reflected a 1 percent gain in benefits and a 0.9 percent increase in wages.
Public sector workers’ wage gains outpaced their private sector counterparts. Government workers saw their compensation rise by 1.2 percent, while private-industry employees posted a 0.9 percent gain in compensation.
While inflationary pressures might be dissipating, the cumulative effect remains a challenge for workers.
Fed Welcomes Cooling in Labor Market
This is welcome news for the Federal Reserve, which is on the brink of initiating the next easing cycle.Fed Chair Jerome Powell told reporters at the post-meeting press conference on July 31 that the labor market is coming into better balance and is on track for continued normalization.
“A broad set of indicators suggest that conditions in the labor market have returned to about where they stood on the eve of the pandemic: strong, but not overheated,” Powell stated, adding that “downside risks are real now.”
At a congressional hearing last month, the central bank chief informed lawmakers that “the labor market appears to be fully back in balance” and that it is no longer “a source of broad inflationary pressures for the economy.”
Payroll growth has slowed this year, with average monthly employment gains totaling 222,000, compared with 251,000 last year.
The July jobs report will be released on Aug. 2, and economists expect a reading of 175,000. The unemployment rate is forecast to hold steady at 4.1 percent.
Powell noted that a September rate cut was “on the table” but that it would depend on the totality of the data, including the employment numbers.
While a rate cut is not a guarantee, the Fed “threaded the needle exactly like they were supposed to” at the end of the two-day policy meeting of the Federal Open Market Committee, according to Jeff Klingelhofer, portfolio manager at Thornburg Investment Management.
“There’s always the potential that jobs comes in notably stronger than we are expecting. I don’t think that’s the case, and it could come in weaker,” he said in a note emailed to The Epoch Times. “I think the data will continue to suggest we’re on a path to September. I think that’s a policy mistake personally, but the Fed is likely to move that direction unless we get a significant data surprise on the positive angle—so either higher inflation or much stronger job market than markets are expecting.”
