October 30, 2015 / 1:03 PM / 4 years ago

U.S. labor costs rise in third-quarter; inflation still benign

People attend a job fair at a new Virgin Galactic and The Spaceship Company facility that will house the design and manufacturing of their small satellite launch vehicle in Long Beach, California March 7, 2015. REUTERS/Jonathan Alcorn

WASHINGTON (Reuters) - U.S. labor costs accelerated in the third quarter as the jobs market continued to tighten, but remained well below levels that would push inflation closer to the Federal Reserve’s 2 percent target.

The Employment Cost Index, the broadest measure of labor costs, increased 0.6 percent after an unrevised 0.2 percent gain in the second quarter, the Labor Department said on Friday.

The increase was in line with expectations. Second-quarter labor costs were restrained by a reduction in commissions and bonuses earned by workers.

There is hope that a significant decline in labor market slack will lead to upward pressure on wages. Wage growth has been frustratingly slow even though the current unemployment

rate of 5.1 percent is not far from the 4.9 percent level that many Fed officials consider consistent with full employment.

The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack. It is also considered a better predictor of core inflation.

Wages and salaries, which account for 70 percent of employment costs, rose 0.6 percent in the third quarter. They increased 0.2 percent in the second quarter.

Private sector wages and salaries advanced 0.7 percent after rising 0.2 percent in the prior quarter.

In the 12 months through September, labor costs rose 2.0 percent, still below the 3 percent threshold that economists say is needed to bring inflation closer to the Fed’s target.

Reporting by Lucia Mutikani; Editing by Paul Simao

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