US employment costs pick up, likely locking in one more Fed rate hike

BLOOMBERG 

US employment costs accelerated by more than forecast at the start of the year, underscoring persistent inflationary pressures that will keep the Federal Reserve on track for another interest-rate hike next week.
The employment cost index, a broad gauge of wages and benefits, increased 1.2% in the first quarter, according to Labor Department figures. It was the first quarterly acceleration in a year, led by a pickup in benefits.
The median estimate in a Bloomberg survey of economists called for a 1.1% advance. Labour costs have risen at least 1% for seven straight quarters, extending what was already a record streak in data back to 1996.
The report included revised seasonally adjusted data for the past five years.
The figures show that compensation is still rising fast in a persistently tight labour market. That said, job openings are coming down and layoffs are swirling as more people are looking for work, which could limit further pay gains.
Fed officials will need to see signs of a sustained deceleration before they declare victory in the war on price pressures. The data still keep them on course to raise interest rates by a quarter point next week, before what’s expected to be a long pause. That was further reinforced by a separate report, which showed the Fed’s preferred inflation gauge rose at a brisk pace in March. US stock futures remained lower and the yield on the two-year Treasury note was little changed after the releases.
The advance in compensation gains last quarter was mainly due to goods-producing industries like construction. Labour costs at service providers rose 1.1%, the least in five quarters.
That’s important for the Fed, which has been particularly concerned with inflation in service industries. The personal consumption expenditures report showed a closely watched measure of services price growth excluding energy and housing advanced at the slowest pace in eight months, according to data compiled by Bloomberg.