WRAPUP 1-Private sector wage gains lift US labor costs in second quarter

US labor costs rose 0.9% in the second quarter, driven by wage growth in goods-producing industries, but the jobs market's impact on inflation remains limited.

U.S. labor costs ​increased slightly more than expected in the second quarter as private-sector ‌wage ​growth picked up, though the trend suggested the jobs market was not driving inflation. The strength in wages reported by the Labor Department on Friday was concentrated in the goods-producing industries. Job growth accelerated between March and May. The momentum, however, fizzled in June. Economists ‌describe the labor market as being stuck in a "low hire, low fire" state.

"Overall, the report highlights that strong job gains in the quarter did not translate into a meaningful increase in wage pressures," said Priscilla Thiagamoorthy, a senior economist at BMO Capital Markets. "Policymakers will be reassured that, although consumer inflation is still running above the 2% target, at least cost pressures are not coming ‌from the labor market." The Employment Cost Index, the broadest measure of labor costs, climbed 0.9% last quarter after advancing by the same margin in the January-March quarter, the Labor ‌Department's Bureau of Labor Statistics said. Economists polled by Reuters had forecast the ECI would rise 0.8%.

Labor costs increased 3.4% in the 12 months through June after a similar gain in the year through March. The ECI is viewed by policymakers as one of the better measures of labor market slack and a predictor of core inflation because it adjusts for composition and changes in job quality. Wages and salaries, which account for the bulk ⁠of labor costs, ​increased 0.9% in the second quarter after rising ⁠0.8% in the January-March quarter. In the 12 months through June, wages rose 3.2% after advancing 3.4% in the year through March. When adjusted for inflation, wages fell 0.3% in the year to June.

Private sector wages ⁠and salaries increased 0.9% last quarter after rising 0.7% in the January-March quarter. They advanced 3.1% in the year through June, slowing from the 3.4% gain in the prior period. Annual wages dropped 0.4% ​last quarter when adjusted for inflation. U.S. stocks opened higher. The dollar gained versus a basket of currencies. U.S. Treasury yields rose, with the yield on the 30-year bond ⁠near a 19-year high.

CONSTRUCTION SECTOR WAGE GROWTH REBOUNDS The Federal Reserve on Wednesday left its benchmark overnight interest rate in a 3.50%-3.75% range. Three members of the U.S. central bank's policy-setting committee dissented. They "preferred" a quarter-percentage-point hike. While ⁠inflation eased ​in June, risks are tilted to the upside amid war in the Middle East, now in its sixth month. Goods-producing industries wages and salaries jumped 1.2% last quarter after gaining 0.4% in the January-March quarter. They were boosted by a 1.5% rebound in construction wages after being unchanged in the January-March quarter. Manufacturing wages increased 1.0%.

Wages in service-providing industries climbed 0.8%, ⁠matching the prior quarter's gain. Wage growth in the wholesale trade industry braked sharply, rising only 0.1% after advancing 1.2% in the first quarter. State and local government wages increased 0.9% ⁠after rising 1.0% in the January-March quarter. They ⁠increased 3.4% in the 12 months through June.

Benefit costs for all workers rose 1.0% after surging 1.2% in the January-March quarter. They increased 3.8% in the 12 months through June after increasing 3.6% in the year through March. The slowdown over the quarter was mostly in ‌the private sector, where benefits rose ‌0.9% after shooting up 1.3% in the first three months of the year.