BUSINESS

US wage growth shows signs of strengthening as strong hiring boosts competition for workers

04/30/2015 08:43 EDT | Updated 08/07/2015 07:59 EDT
WASHINGTON - Paychecks for U.S. workers are rising at a faster pace as strong hiring in the past year has lowered the unemployment rate and increased competition for workers.

The employment cost index, which tracks wages, salaries and benefits, rose 2.6 per cent in the first quarter compared with a year ago, the Labor Department said Thursday. Wages and salaries also rose 2.6 per cent.

That is up from a 1.8 per cent pace in March of 2014 and the fastest growth since the fourth quarter of 2008.

Excluding government workers, wages and salaries for private companies rose 2.8 per cent from the previous year. That was the best showing since the third quarter of 2008.

"The trend is unambiguously rising," Ian Shepherdson, an economist at Pantheon Macroeconomics, said.

The report suggests companies are being forced to offer somewhat higher pay to attract workers. Still, wages and salaries typically increase 3.5 per cent to 4 per cent in a healthy economy.

The Federal Reserve watches the employment cost index closely for signs that wages are increasing. Strong increases could force companies to raise prices for their goods to cover higher labour costs. That could lead to higher inflation, though there is no sign that is happening now. Inflation remains far below the Fed's 2 per cent target.