Workers' pay and benefits rose more slowly than inflation in the second quarter, even as the U.S. economy expanded at a healthy pace, the government reported yesterday.
Employers' costs for wages, salaries and benefits rose 0.7 percent in the quarter, the same pace as in the first quarter and the smallest gain in six years, the Labor Department said.
Meanwhile, rising energy costs helped push consumer prices up at an annual 3.3 percent rate in the second quarter, while the economy grew at a 3.4 percent annual rate, the Commerce Department said in a separate report.
Together, the reports portrayed an economy that continues to produce more goods and services even while workers' pay gains are getting smaller, nearly four years after the end of the most recent recession. Businesses are holding down the growth of their labor costs through new technologies and management practices.
"The economy's doing fine, except if you figure in working families," said Jared Bernstein, senior economist at the Economic Policy Institute, a think tank focused on labor issues. "We're posting great numbers in aggregate demand, yet the lousiest on record for wage growth."
Stock prices fell after the reports were released, as many investors worried that the inflation figures might prompt the Federal Reserve to raise short-term interest rates more aggressively in coming months to tamp down price pressures. The 3.3 percent increase in prices in the second quarter compares with a 2.3 percent rise in the first quarter.
But Federal Reserve officials favor a Commerce Department measure of inflation that excludes food and energy prices. That price index rose at a 1.8 percent annual rate in the second quarter, down from 2.4 percent in the first quarter and within the Fed's comfort zone.
Fed policymakers also follow labor costs closely for signs of inflationary pressures. The Labor Department's employment cost index report showed no cause for such concern. Over the past year, that index -- a measure that includes wages, salaries and employers' contributions to pensions, health insurance and other benefits -- rose 3.2 percent, the smallest increase in nearly six years.
The slowdown partly reflects subdued growth in wages and salaries. They rose 2.4 percent in the year that ended in June -- the smallest gain since the government began collecting such information in early 1982.
But it also reflects sharply reduced growth in benefit costs, as many employers have cut their pension contributions and shifted more health insurance expenses to their employees, analysts said. Many companies have also trimmed their benefit expenses by using more contract labor. Benefit costs rose 5.1 percent in the year that ended in June, the smallest yearly increase since late 2002.
Benefit costs rose just 0.8 percent in the second quarter, down from a 1.2 percent advance in the first quarter. Wages and salaries rose 0.6 percent in the spring, same as in the winter.
Economic growth slowed a bit in the second quarter, according to the Commerce Department's first estimate of the increase in gross domestic product, or the value of all goods and services produced in the United States. The expansion at a 3.4 percent annual rate in the spring followed a 3.8 percent annual rate in the winter. The GDP figures are adjusted for inflation.
The first estimate is based on incomplete data and is subject to revision. The Commerce Department also released revisions of its GDP figures for the past three years, showing that the recovery from the 2001 recession was slightly weaker than previously reported while inflation was slightly higher.
For example, the economy grew 4.2 percent last year, according to the new figures, down from the 4.4 percent that previously was thought.
Some economists believe economic growth is picking up now, propelled by strong consumer spending on autos and real estate, as well as rising business investment in equipment and software.
Others, however, worry that rising oil prices will dampen spending over time. Fed officials estimate that higher energy costs will shave about 0.75 percentage points off the economy's growth this year.
Growth also could be dampened in coming months if rising interest rates cool the red-hot housing market, as some analysts expect.