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U.S. Workers Get Biggest Pay Increase in Nearly a Decade--Update

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07/31/2018 | 08:52pm CEST

By Harriet Torry

WASHINGTON -- American workers received their biggest pay raises in nearly decade in the year to June, a sign the strong labor market and low unemployment are boosting wages as employers compete for scarcer workers.

The employment-cost index, a measure of wages and benefits for civilian workers, rose 2.8% in the 12 months to June, the Labor Department said Tuesday. Wages and salaries, which account for about 70% of total compensation, also rose 2.8% from a year earlier. That marked the strongest gain for both measures since September 2008.

The wage gains suggest the steady drumbeat of rising inflation continues. What's more, a separate report from the Commerce Department Tuesday showed the price index for personal consumption expenditures, the Federal Reserve's preferred inflation measure, was up 2.2% in June from a year earlier and rose 0.1% from May. Excluding volatile food and energy costs, prices also rose 0.1% in June, and increased 1.9% from a year earlier.

Signs of gradually rising inflation come as Federal Reserve policy makers meet in Washington for a two-day policy gathering. Officials are likely to leave their benchmark federal-funds rate unchanged Wednesday and wait until September for the next rise. They raised the rate twice this year, most recently in June to a range between 1.75% and 2%, and have penciled in two more moves this year.

"Right now, the rate of increase is trending upwards... but it's not rocketing," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients, adding "nothing would put the Fed on alert more quickly that a clear acceleration in the ECI."

The employment-cost index rose a seasonally adjusted 0.6% in April through June. That lagged behind the 0.8% growth clocked in the first quarter, and fell short of economists' expectations.

Still, the ongoing growth signals historically low unemployment is putting upward pressure on companies' labor costs.

Wages and salaries rose 0.5% from the prior quarter. Benefit costs -- which include health coverage, retirement benefits and paid leave -- advanced a stronger 0.9%.

Private-industry workers saw total compensation in the second quarter rise 0.6% from the prior quarter and increase 2.9% from a year earlier. The year-over-year gain was the strongest since the second quarter of 2008.

Wages and salaries of private-sector workers rose 2.9% in June from a year earlier, matching the pace seen in the prior quarter.

Wage growth, stubbornly sluggish for years following the 2007-09 recession, has picked up by some metrics as the labor market has tightened and employers have raised pay to compete for workers.

High demand for freight and a tight labor market means truckload carrier USA Truck Inc. will raise pay for drivers in the third quarter, Chief Executive James Reed said during a July 27 earnings call.

The industrywide driver shortage, which Mr. Reed described as the biggest challenge facing the trucking business, "is fueled by a strong economy with near full employment levels, increased transportation regulations and fewer new drivers entering the industry," he said.

Write to Harriet Torry at harriet.torry@wsj.com

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