Pay, Benefits Rose Modestly in ‘96, U.S. Says

WASHINGTON — American workers’ pay and benefits edged higher last year, the government said Tuesday, but the increases were well within the comfort zones of inflation-wary investors on Wall Street.

Total compensation, as measured by the Labor Department’s employment cost index, rose 2.9% last year, up from 2.7% in 1995, but less than the 3% gain of 1994.

In the fourth quarter, compensation rose by 0.8%, the department said, up from the 0.6% rise in the third quarter, but less than Wall Street economists had expected.

“I don’t think it’s enough to really be alarming in terms of inflation,” said economist Bill Chemey of John Hancock Financial Services in Boston.

At the same, however, the Conference Board, a business research group, reported that its consumer confidence index jumped in January to a 7 1/2-year high. Some analysts suggested that 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,” said economist Stephen S. Roach of Morgan Stanley & Co. He predicted that Fed policymakers will nudge short-term interest rates up at next week’s meeting.

The employment cost news came as a relief in financial markets as traders saw no sign of wage-driven inflation that might prompt Federal Reserve Board policymakers to raise short-term interest rates at their meeting in a bid to hold down prices.

Stock and bond prices jumped after the report but later fell back. The Dow Jones industrial average, which rose more than 100 points during the session, retreated on profit-taking to close down 4.6 points in its fifth consecutive decline. Bond yields dipped.

Investors have been worried by signs that a tight job market would force employers to bid up wages and benefits, possibly feeding inflation.

The department noted that the 0.8% rise in pay and benefits in the quarter was within the 0.6% to 0.8% quarterly growth range of the last three years.

The increase in compensation during the period included a 0.8% rise in wages and salaries and a 0.7% rise in the cost of benefits, mainly health care, received by employees, the department said. Both were up from increases of 0.6% in the third quarter of last year.

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 that 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.

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Consumer Confidence

From a monthly survey of 5,000 U.S. households.

Index; 1985: 100:

January 1997: 116.8

Source: Conference Board