Rising labor costs stoked fears of inflation this week, while productivity in the service sector remained strong. Here's a look at this week's economic developments and how they may impact your business.
Labor Costs Rising
Revised figures released Wednesday by the Labor Department showed that labor costs rose much more sharply over the past six months than previously reported, renewing fears of inflation.
While productivity rates in the nonfarm business sector over the second quarter were revised up from 1.1 percent to 1.6 percent, unit labor costs — a gauge of productivity and hourly wages — jumped 4.9 percent, compared to just 4.2 percent reported on Aug. 8, the department said.
Over the first quarter, unit labor costs — typically a company's single-biggest expense — soared by 9 percent, rather than 2.5 percent reported earlier, the department said. The difference was the result of an upward revision in hourly compensation rates from 6.9 percent to 13.7 percent, the report showed.
On Aug. 8, the Federal Reserve ended a two-year run of interest-rate hikes, saying slower economic growth, strong productivity, and stable labor costs, among other factors, would stave off inflation.
Service Sector Growth
Despite rising costs, the service sector grew at a faster pace in August, the Institute of Supply Management reported Wednesday.
A surge in business activity boosted the ISM non-manufacturing index to 57 percent from 54.8 percent in July, despite a slowdown in new orders, employment, and inventories. Readings over 50 percent indicate growth in the index, which is based on a survey of purchasing and supply executives at more than 350 companies nationwide.
Eleven of 18 business sectors in August reported increased activity, including management and support services, transportation and warehousing, and education, among others, the report said.
Respondents were "mostly positive concerning current business conditions," Anthony Nieves, chairman of the ISM nonmanufacturing survey committee, said in a statement. "Prices, fuel expenses, energy costs, and interest rates remain areas of concern."
Wholesale outlets saw a 0.4 percent jump in sales in July to $331.7 billion, the Commerce Department reported on Thursday.
Sales of durable goods rose 0.1 percent from June, led by metals and communications equipment, while nondurable goods, including petroleum, rose 0.7 percent, the report said.
Fewer Home Sales
Homes sales are expected to be lower for the rest of the year, the National Association of Realtors said Thursday.
Existing-home sales are projected to fall 7.6 percent to 6.54 million compared to 2005, while new home sales will drop 16.1 percent to 1.08 million, the group said.
Despite the declines, prices are forecast to climb by 2.8 percent to $225,900 for existing homes and 0.2 percent to $241,400 for new homes, the group said.
"This year sales are slowing, homes are plentiful and sellers are negotiating," David Lereah, the group's chef economist, said in a statement. "Under these conditions, we'll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory."
Jobless Claims Down
The number of new claims for unemployment benefits fell by 9,000 to 310,000 in the week ending Sept. 2, the Labor Department reported on Thursday.
The four-week moving average of ongoing jobless claims was 2,488,250, an increase of 4,750 over the previous week, the report said.
The largest increases in new claims come from New York, Kentucky, and North Carolina, the report said.
Copyright © 2006 Mansueto Ventures LLC. All rights reserved.