Inflation Nation: Labor Costs Soaring Twice as Fast as Previously Thought

WASHINGTON, DC - MAY 21: U.S. President Joe Biden and President Moon Jae-in of the Republi
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Hourly compensation soared much more than expected in the first three months of the year, even as millions of Americans remained on unemployment roles or out of the workforce, data from the Bureau of Labor Statistics showed Thursday.

Hourly compensation jumped 7.2 percent in the first quarter, according to the BLS’s revised estimate of labor costs and productivity. This had been reported as rising 5.1 percent in the first estimate.

Adjusted for inflation, hourly compensation rose 3.3 percent, more than twice the 1.3 percent originally reported.

Wage pressure was higher in manufacturing, where compensation now seen as jumping 8.9 percent nominally, compared with the 4.6 percent estimated earlier. Inflation adjusted compensation rose five percent, up from the earlier estimate of 0.9 percent.

Durable goods manufacturing compensation jumped 11.7 percent versus 6.2 percent in the earlier estimate. Inflation-adjusted compensation rose 7.6 percent versus 2.4 percent previously estimated.

Compensation costs include wages and salaries, supplements, employer contributions to employee benefit plans, and taxes.

The upward revisions in compensation were not accompanied by similar upward revisions in output. The growth in business output remained unchanged at 8.3 percent, reflecting the reopening of the economy. Manufacturing output was revised lower to a 1.4 percent gain, down from 2.3 percent.y

Rising compensation is typically a good sign for workers but can add to inflationary pressures, particularly when the rise of compensation outpaces the output of businesses. Higher prices can wipe out any benefits to the bottom lines of American households from rising compensation. Thursday’s data will likely add to fears that inflation is running hotter than expected.


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