Originally created 01/29/97

Wages up only modestly, Wall Street rallies

WASHINGTON - Workers' wages and benefits rose a moderate 2.9 percent last year, the government reported Tuesday, triggering a rally in financial markets despite a worrisome separate report on consumer confidence.

Analysts were divided over what impact the seemingly conflicting reports would have on interest rates.

Some said the modest increase in the Labor Department's Employment Cost Index showed inflation remained under control and would permit Federal Reserve policy-makers to leave interest rates unchanged when they meet next week.

"This Employment Cost Index report should allow (Chairman) Alan Greenspan and the Fed to sit tight for at least another month or so," said economist Bill Cheney of John Hancock Financial Services in Boston. "It confirms the impression that the labor markets aren't getting so tight that they will fuel inflation."

At the same, however, the Conference Board, a business research group, reported that its consumer confidence index jumped in January to a 7«-year high. Some analysts suggested the steep advance could lead to sharply increased consumer spending, which represents two-thirds of the nation's economic activity. That, together with rising labor costs, could lead to higher prices, they argued.

"Consumer confidence really suggests that we have got a very impressive head of steam going into 1997 that, if anything, will put further heat on wages and inflation," contended economist Stephen S. Roach of Morgan Stanley & Co. He predicted Fed policymakers would nudge short-term interest rates up at next week's meeting.

The 2.9 percent increase in labor costs last year was the biggest since they rose 3 percent in 1994. Labor costs had risen 2.7 percent in 1995.

Wages and salaries - nearly three-fourths of total compensation - rose 3.3 percent, steepest since a 3.6 percent jump in 1991. But benefit costs inched up just 2 percent, the smallest gain on record.

The index is considered one of the best gauges of inflation pressures since compensation represents about two-thirds of the cost of a product.

The report calmed financial markets by coming in as many analysts had expected, rather than rising sharply as some investors had feared.

The inflation-sensitive bond market rallied, driving interest rates down from their four-month high and giving the stock market a boost. By midafternoon, the Dow Jones industrial average was up more than 80 points.

In its report, the Conference Board in New York said its Consumer Confidence Index rose 2.6 points to 116.8 in January, its highest level since October 1989. The advance, which was well above economists' estimates, was the third straight.

While some analysts expressed concern the high confidence level could add to inflation pressures, others said consumer enthusiasm would be muted by high levels of debt and slower job and income growth this year.

During the fourth quarter, employment costs rose a seasonally adjusted 0.8 percent as expected, up from the 0.6 percent increase the previous three months and matching the gains in the first and second quarter.

Wages and salaries also rose 0.8 percent, up from 0.6 percent during the previous three months and the fastest since a 0.9 percent advance in the April-June quarter. The growth in pay during the third quarter had been the slowest since 0.4 percent during the same quarter of 1992.

Benefit costs grew 0.7 percent, up from 0.6 percent in the July-September period and matching the second-quarter increase.

The quarterly figures are adjusted for seasonal variations.


Trending this week:


© 2018. All Rights Reserved.    | Contact Us