Employers continued paying more for workers during the second quarter, while consumers remained cautious about the economy despite a modest improvement in confidence.

The Employment Cost Index rose 0.9% during the quarter. Wages and salaries increased 0.9%, while benefit costs climbed 1%.

Over the past year, total employee compensation increased 3.4%. Wages rose 3.2%, and benefits advanced 3.8%.

The numbers show that labor remains expensive for businesses. Companies are still paying more for salaries, health insurance and other employee benefits, with some of the strongest pressure in construction and manufacturing.

Workers, however, are not necessarily feeling better off. After adjusting for inflation, private-sector wages declined 0.4%. That means many employees may be earning more dollars but still have slightly less purchasing power.

The University of Michigan’s final July consumer-sentiment index rose to 55.2, up from 49.5 in June. Even with that improvement, confidence remained 10.5% below its level a year earlier.

Consumers also continue expecting prices to rise. One-year inflation expectations eased to 4.2%, while five-year expectations held at 3.3%.

Taken together, the reports describe an economy where businesses are still absorbing higher labor costs while households remain careful with spending.

Consumers have not stopped buying, but many are comparing prices, waiting for promotions and delaying purchases that are not essential. Retailers, restaurants and service businesses should not mistake improving confidence for a broad return to unrestricted spending.

The Federal Reserve will also study the reports closely. Slower annual wage growth reduces the risk of a new wage-driven inflation surge, but rising benefit costs and weak consumer purchasing power show that financial pressure has not disappeared.

JBizNews Desk | Wall Street

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