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Employment costs rose less than estimated in the second quarter as worker pay raises held steady while benefit gains decelerated, suggesting inflation pressures remain muted.
The employment cost index, a broad gauge monitored by the Federal Reserve, climbed 0.6% from the prior quarter, the slowest increase since the end of 2017, according to Labor Department released data July 31. The gauge increased 2.7% from a year earlier, also a deceleration.
The report shows employers remain hesitant to offer greater wage gains and more generous benefits, even in a strong labor market, suggesting cost pressures within companies are muted.
Compensation gains were broad-based across sectors, though there was some deceleration in service-providing industries, which slowed to a 0.5% pace, the weakest since 2016.
While the headline index is weaker than the projected 0.7% rise seen in Bloomberg’s survey, it’s unlikely to change anything for Fed policymakers expected to lower interest rates July 31 for the first time in a decade.
The data suggest some potential weakness ahead of the government’s monthly employment report due Aug. 2. Economists expect it will show average hourly earnings growth held at a 3.1% annual pace in July as wage pressures remained steady. That gauge has cooled from a 3.4% pace in February that was the highest reading of the economic expansion.