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Inflation, Labor Costs Rising

June 26, 2000
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WASHINGTON, DC – Real gross domestic product (GDP) grew at an annual rate of 5.4% in the first quarter, according to the preliminary estimate from the Department of Commerce.

This fell short of the robust, 7.3% growth rate in the final quarter of 1999, noted David F. Seiders, chief economist and senior staff vice president of the National Association of Home Builders (NAHB), but remained well above the prevailing estimates of sustainable growth.

The first-quarter gain was achieved despite surprising declines in business inventory investments and net exports, stated Seiders, which together subtracted 2.7 percentage points from GDP growth.

Inflation Measures

The inflation measures in the first-quarter GDP report were not overly alarming, Seiders remarked, after accounting for the impacts of surging energy prices.

However, the body of evidence shows that the inflation line is now tilting upward, if only gently.

Seiders also related that rising energy costs have induced many businesses to try again to make previously unsuccessful price increases stick, and growing numbers of firms apparently have been successful in these efforts.

Employment Costs

Labor costs are placing downward pressure on business margins and upward pressure on prices, despite higher labor productivity, said Seiders.

The Labor Department’s Employment Cost Index (ECI) for all civilian workers, including wages, salaries, and benefits, increased by 1.4% during the first quarter, the largest increase since 1989.

Wages and salaries in private industry picked up 1.2%, while the benefits component was up by 2.3%, the largest increase in a decade.

In addition, Seiders stated, the increase in wages and benefits costs were broad-based, with most industries reporting an acceleration in labor compensation.

Excerpted from “The Outlook” in Housing Economics, April 2000 issue, published by the National Association of Home Builders.

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