U.S. Labor Costs Rise Strongly In Second Quarter

• U.S. labour costs increased strongly in the second quarter as a tight jobs market continued to boost wage growth, which could keep inflation elevated and give the Federal Reserve cover to continue its aggressive interest rate hikes.
• Other data on Friday showed consumer spending accelerating in June, though the uptick was tied to higher costs for gasoline as well as a range of other goods and services, with monthly prices surging by the most since 2005. Soaring inflation contributed to the economy's contraction in the first half of this year, leaving it on the brink of a recession.
• "The Fed will continue to grapple with trying to tame inflation without tipping the economy into a recession," said Dante DeAntonio, an economist at Moody's Analytics in West Chester, Pennsylvania "The data on wage and price growth will not do them any favours as upward pressure clearly remains even as the overall economy has weakened."
• The Employment Cost Index, the broadest measure of labour costs, increased 1.3% last quarter after accelerating 1.4% in the January-March period.
• Economists polled by Reuters had forecast the ECI would rise 1.2% in the second quarter. Labour costs surged 5.1% on a year-on-year basis, the largest rise since the current series started in 2001, after increasing 4.5% in the first quarter.
• The ECI is widely viewed by policymakers and economists as one of the better measures of labour market slack and a predictor of core inflation, as it adjusts for composition and job-quality changes. It is being closely watched for signs of whether wage growth has peaked as economists and investors try to gauge the pace of the Fed's interest rate hikes.

(Source: Reuters)