Updated from 10:34 a.m. EDT
Growth in wages and benefits for U.S. workers moderated in the second quarter, the government said Thursday in a report that could ease the fears of economists and
policymakers that the low unemployment rate is threatening to send employers' costs higher and raise inflationary pressures.
But slower growth in wages and benefits does not appear to be cutting the spending habits of American consumers and businesses, as evidenced by June's surge in orders for durable goods. Though much of the increase was attributable to orders for aircraft, which have disproportionately large price tags, demand for most big-ticket items was higher.
employment cost index
, or ECI, a measure of overall growth in the cost of hiring and keeping workers, rose 1% in the second quarter, slower than the 1.4% gain in the first quarter, the
orders for durable goods
-- big-ticket items meant to last three or more years -- rose a sharp 10% to $243.16 billion in June, the biggest gain since July 1991, the
said Thursday. The increase followed a similarly strong 7% gain in May, which was upwardly revised from a earlier estimate of 6.1%.
Excluding a sharp 43% rise in orders for transportation-related goods, which includes high-priced commercial and military aircraft, durable goods orders rose 0.8% in June, following May's 7.1% gain. Defense-related goods orders also rose 194.1% in June, following a 29% gain in May.
Over all, the data provide mixed signals for Fed policymakers and chairman Alan Greenspan, who acknowledged in
recent testimony before
that the Fed's future efforts to raise interest rates to slow economic activity and avoid inflation will largely hinge on economic data before its next meeting on Aug. 22. Greenspan, however, did note that some areas of the economy may slowing to more manageable levels.
The employment cost index is known to be closely watched by Greenspan, especially since unemployment has been near
historic lows. His immediate concern is that as the labor market grows tighter, employers will need to increase wages and benefits to attract and keep workers, a phenomenon known as "wage push" inflation. Business would then need to pass those costs along in the form of higher prices for its goods and services, leading to broader inflation.
Year-over-year, the ECI was up 4.4% in the second quarter, vs. 3.2% in the year-earlier period, suggesting a longer-term accelerating trend in wages and benefits, even though growth slowed from earlier this year.
"While the ECI gain for the second quarter is not another 'smoking gun' for the Fed, it nevertheless will leave the Fed remaining wary about potential wage push inflation," said Maury Harris, chief economist at
A separate reading on labor market conditions Thursday -- Labor's weekly report of Americans applying for first-time unemployment benefits -- dropped by 40,000 to 272,000 suggesting continued strength in labor markets as the third-quarter rolls along.
Still, the tame reading for the ECI could temper the Fed's concerns over labor-driven inflation to some degree, but the higher level of durable goods orders may continue to increase fears of demand-driven inflation, which would come as more dollars chase a constant amount of goods.
In his testimony, Greenspan noted that the demand side of the U.S. economy had shown some signs of moderation in key areas in the second quarter. But more recent rebounds in
home sales and consumer confidence might already be undermining Greenspan's vision of a significantly slower economy. Durable goods orders have risen in seven of the past eight months.
The Fed has raised short-term interest rates six times in the past year in an attempt to avoid inflation by making it more costly for consumers and businesses to borrow and spend. At its most recent meeting in June, the Fed's policymaking committee decided to keep interest rates steady because of signs that economic activity was starting to slow in the second quarter.
The latest employment cost index included contract-signing bonuses, profit-sharing bonuses and other bonuses for the first time, but did not estimate the impact of those benefits on the index. Overall benefit costs, which account for roughly a third of the employment cost index, rose 1.1% after a first-quarter gain of 2%.
Wages and salaries rose 1%, slightly lower than 1.1% in the first quarter. The finance, insurance and real estate sector saw the largest cooling in wage growth, cooling to a 0.5% pace from 2.4% in the first quarter.
Within the durable goods data, orders for electrical and electronic goods rose a modest 0.3%, following May's sharp 27.4% gain. Orders for primary metals rose 1.5% after a 2.6% gain in May. Shipments of durable goods were up 1.5%.