According to the latest data released by the Labor Department, pay and benefits for American workers experienced slower growth in the second quarter of this year compared to the previous quarter. The Employment Cost Index, a key measure of compensation, showed a 0.9% increase in the April-June period, down from a 1.2% rise in the first quarter.
On an annual basis, compensation growth was recorded at 4.1% in the second quarter, slightly lower than the 4.2% growth seen in the first quarter. While higher wages and benefits are generally positive for employees, the deceleration in pay growth could help in keeping inflation in check, which is a key concern for the Federal Reserve.
Rapid wage growth often prompts businesses to raise prices to offset increased labor costs, potentially fueling inflation. However, with the current trend of slower pay growth, the Fed may find reassurance that inflation is gradually moving back towards its target of 2%.
Moreover, the data indicates that inflation is also moderating, which means that wage and benefit growth, when adjusted for inflation, is actually accelerating. In the second quarter, this adjusted growth stood at 1.1% compared to the same period last year, up from 0.8% in the previous quarter.
As the Federal Reserve concludes its latest policy meeting, it is widely expected to maintain its key short-term rate. However, there are strong indications that a rate cut, the first in four years, could be on the horizon, with many anticipating such a move at the Fed's upcoming meeting in September.
