US paychecks grow at record-slow pace in 2nd quarter as bonus and incentive pay drops off

WASHINGTON – U.S. wages and benefits grew in the spring at the slowest pace in 33 years, stark evidence that stronger hiring isn’t lifting paychecks much for most Americans. The slowdown also likely reflects a sharp drop-off in bonus and incentive pay for some workers.

The employment cost index rose just 0.2 per cent in the April-June quarter after a 0.7 increase in the first quarter, the Labor Department said Friday. The index tracks wages, salaries and benefits. Wages and salaries alone also rose 0.2 per cent.

Both measures recorded the smallest quarterly gains since the second quarter of 1982.

Salaries and benefits for private sector workers were unchanged, the weakest showing since the government began tracking the data in 1980.

The disappointing figures come after the index had been pointing to a pickup in wage growth after nearly two years of steady hiring. The index rose just 2 per cent in the second quarter compared with a year earlier. That is down from a 2.6 per cent increase in the first quarter, which was the biggest in six and a half years.

The slowdown suggests that companies are still able to find the workers they need without boosting pay, a sign the job market is not yet back to full health. That could cause some Federal Reserve officials to push for a delay in any increase in the short-term interest rate they control.

“Despite a tighter labour market, and all of the stories about pay increases at various large firms, wage growth is not picking up meaningfully,” said Jennifer Lee, an economist at BMO Capital Markets. “This may not sit well with (Fed) policymakers.”

Employers have added nearly 3 million jobs in the past year, lowering the unemployment rate to 5.3 per cent in June, down from 6.1 per cent 12 months earlier. Most economists have expected those gains to force businesses to raise pay to attract and keep employees.

The Federal Reserve watches the employment cost index closely for signs that healthy hiring is pushing up wages. Strong increases could lead companies to raise prices for their goods to cover higher labour costs, boosting inflation. That would make the Fed more likely to raise the short-term interest rate it controls. Consumer prices have been tame in the past year, though in recent months they have moved higher.

In some occupations where bonuses are common, compensation fell sharply after spiking in the first quarter. Those include sales, professional services such as law and accounting, and management.

The employment cost index figures now match the sluggish pace of growth reported in the average hourly pay data that’s part of the monthly jobs report. Average hourly wages were up just 2 per cent in June from a year earlier, the Labor Department said earlier this month.

Yet another measure of pay, compiled by the Federal Reserve Bank of Atlanta, shows wages are accelerating. Hourly pay for a typical employee rose 3.2 per cent in June from 12 months earlier, according to the Atlanta Fed. While that is double the annual pace of 1.6 per cent in February 2010, it is still below the pre-recession levels of about 4 per cent.

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This story has been corrected to show that U.S. benefits and wages grew at the slowest pace in 33 years, not 27 years.