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Decline in unit labour costs

Reuters
Friday, December 08, 2017

WASHINGTON - US unit labour costs were much weaker than initially thought, declining both in the second and third quarters of this year, pointing to very benign inflation pressures in the near term even as the labour market is close to full employment.

Other data on Wednesday showed private-sector employment increasing at a solid clip in November, with the manufacturing sector adding the most jobs in at least 15 years.

The signs of soft wage growth and tightening labour market conditions could further intensify inflation debate at the Federal Reserve's policy meeting next week. Economists, however, believe that wage growth is being understated.

"The weakness in unit labor costs will undoubtedly be cited by many as evidence that worries about the economy overheating because of a tightening labor market are misplaced," said Jim O'Sullivan, chief US economist at High Frequency Economics in Valhalla, New York.

"But we believe that the official wage income data being used for calculations have been distorted recently by income reporting being delayed in anticipation of tax cuts, and Commerce Department analysts may be misinterpreting information from quarterly tax records."








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