U.S. paycheck increases remain on sluggish pace

U.S. workers' paychecks grew at a moderate rate over the summer, showing little sign of accelerating from the sluggish growth that has persisted since the recession ended.

The employment cost index, which tracks wages, salaries and benefits, rose 0.6 percent in the July-September quarter from the April-June quarter, the Labor Department said Friday. That is stronger than the second quarter's 0.2 percent gain.

Yet in the past 12 months, pay and benefits have risen just 2 percent. That's below the 3.5 percent to 4 percent typical of a healthy economy.

The modest annual gain is a sign that companies are still able to find the workers they need without offering much higher pay. That suggests the job market is not yet back to full health.

Federal Reserve officials consider wages and salaries a key indicator of the economy's health. A sustained pickup in wages would be a sign that the unemployment rate might not fall much further.

As the unemployment rate declines and gets closer to levels consistent with a strong economy, employers typically are forced to raise pay to attract and keep workers. But so far that trend hasn't kicked in.

In the past year, employers have added 2.2 million new jobs and the unemployment rate has fallen from 5.9 percent to a seven-year low of 5.1 percent.

Even so, wage gains remain sluggish. Many economists say that may be because there are millions of people not counted in the official unemployment rate who would be willing to take full-time jobs if they were offered.

For example, about 6.5 million people are working part-time but would prefer full-time jobs. That's about 2 million more than before the recession. And millions more Americans have stopped looking for work and are no longer counted as unemployed, but would take a job if offered one.

The Federal Reserve watches the employment cost index closely for signs that healthy hiring is pushing up wages. Strong increases could lead companies to raise prices for their goods to cover higher labor costs, boosting inflation.

That would make the Fed more likely to raise the short-term interest rate it controls. On Wednesday, the Fed said it wasn't yet ready to raise the rate but might do so at its next meeting, in December.