Wages and Benefits Jump 4.4 Percent

Thursday, July 27th 2000, 12:00 am
By: News On 6

WASHINGTON (AP) — Orders to U.S. factories for big-ticket durable goods surged by 10 percent in June while Americans' wages and benefits rose by 4.4 percent for the 12 months ending in June, the government reported Thursday.

Both the rise in factory orders and the boost in wages and salaries were the biggest in nine years. Analysts said the surge in manufacturing, led by a record increase in demand for aircraft, called into question the widely held view that the economy was beginning to slow.

Such strong demand for manufactured goods, economists said, will raise concerns at the Federal Reserve that the economy is still growing too rapidly and will need to be slowed further with more increases in interest rates. The central bank next meets on Aug. 22.

On Wall Street, stocks were mixed Thursday. The Dow Jones industrial average gained 50 points in the first hour of trading but the Nasdaq index was down 110 points.

Cynthia Latta, economist at Standard & Poor's DRI, said that while the huge jump in durable-goods orders will attract notice at the Fed, the slower growth in employment costs in the second quarter, compared to the first quarter, should provide assurance that inflation is not getting out of control.

``The Fed doesn't have any problem with a strong economy as long as it doesn't set off inflation,'' she said.

The Commerce Department said the surprisingly strong 10 percent increase in orders for durable goods, items expected to last three or more years, followed a strong 7 percent increase in May.

Before the report was released, many economists had been looking for orders in June to remain unchanged. Factory orders had fallen by 5.8 percent in April, leading many economists to proclaim that the long-awaited economic slowdown was beginning.

The Labor Department reported that the 12-month increase in its Employment Cost Index, a closely watched gauge of inflation pressures, was up from a 4.3 percent increase for the 12 months ending in March of this year.

While only a slight upward tick, the 4.4 percent increase was the biggest gain in wages and salaries since a 4.6 percent rise in June 1991.

For the three months ending in June, the increase in wages and benefits was 1 percent, down slightly from a 1.4 percent advance in the first quarter of this year.

While stronger gains in wages and benefits are good for workers, the Federal Reserve is worried that the tightest labor markets in three decades will trigger inflationary wage pressures as employers desperate to fill vacancies start boosting salary offers.

A third report Thursday indicated that the job market remains exceptionally tight. The number of Americans filing new claims for unemployment benefits declined by 40,000 last week to 272,000 as auto manufacturers began rehiring workers temporarily laid off for the annual plant retooling for new model production.

The Federal Reserve has raised interest rates six times over the past 13 months in an effort to raise borrowing costs enough to slow consumer spending, the main engine of economic growth, and keep inflation under control.

Federal Reserve Chairman Alan Greenspan told Congress this week that it was unclear whether the slowdown in the overall economy in the spring was a permanent trend or would be followed by a rebound in growth this summer.

He said Fed policy-makers will be watching upcoming economic statistics closely to determine whether to boost rates for a seventh time when they next meet on Aug. 22.

The report on employment costs showed that wages and salaries were up 1 percent during the second quarter following a 1.1 percent increase in the first quarter of this year.

Benefits, which include such things as pensions and health insurance, were up 1.1 percent in the second quarter after a 2 percent gain in the first quarter.

The decline in applications for unemployment benefits was much bigger than had been expected and pushed total jobless claims down to 272,000, their lowest level since the week ending April 15.

Jobless claims have exhibited a seesaw pattern in recent weeks because of the hiring swings in the auto industry. Three weeks ago, jobless claims had jumped by 27,000 to 320,000, the highest level in a year.

Claims fell by 9,000 two weeks ago before the huge 40,000 decline last week, returning this index to the below-300,000 level that indicates an extremely tight labor market.