On Friday, the Labor Department reported that U.S paychecks in second quarter had the smallest growth since 1982. But the news didn’t discouraged investors in their hopes that the Federal Reserve may soon raise its benchmark interest rate. Analysts claim that Northern America is closely to reach full employment.
Eric Green from New York-based TD Securities reported that job opportunities are now at record highs and the “atrocious” numbers provided by the Labor Department in its latest report are due to a slip in commissions and bonuses workers are entitled to.
Mr. Green said that the Fed will have an “exact” interpretation of the report. But the prospects provided by the department are gloomy. The Employment Cost Index is the lowest in 33 years at a 0.2 percent gain in the second quarter.
Other analysts blame the situation on weak sales since many people work in the retail business where incentives are granted depending on profits. Usually, Commissions and bonuses boosted worker’ financial situation at the beginning of the year.
Bonuses however recorded a 0.6 percent increase in the last two quarters, TD Securities experts said. But the newly unveiled figures of the employment cost index disappointed nearly all analysts, who had expected an at least 0.6 percent growth for the second quarter.
And the indicator is crucial because economists and regulators use it to asses the true state of the labor market. Yet, some analysts noted that the official unemployment rate (5.3 percent) is within the range the central bank uses to estimate full employment.
But the good news is that Americans still trust their economy. Compared to last year’s statistics, the consumer sentiment index rose 13 percent although in July it slipped 3 percentage points.
Although some survey showed that households expect a substantial rise in wages by 2017, a separate survey shows that individuals have a negative view on the labor market which is at odds with the official data.
In the first quarter, employment costs rose 0.7 percent, which is still a weak performance. In the second quarter, compensation levels remained flat for the first time on record, while in the service sector employees saw a tiny 0.1 percent increase. In the manufacturing sector, compensation rose by 0.7 percent from a 0.5 percent in the first quarter.
But the meager 0.2 percent increase in labor costs has a huge downside despite analysts’ optimism on the incoming interest rate hike – it takes at least a 3 percent increase to bring inflation to the 2 percent threshold the Fed needs before raising interest rates.
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