US wages increase strongly in May

Wages in the US rose faster than expected last month, raising hopes that improving job prospects are helping to replace the boost…

Wages in the US rose faster than expected last month, raising hopes that improving job prospects are helping to replace the boost to consumer incomes provided by tax cuts and falling interest rates.

Figures from the Bureau of Economic Analysis showed wages and salaries rising at 0.7 per cent in May, only the second month over the past four years to register such a strong acceleration.

Spending climbed 1 per cent - the fastest rate since October 2001. Wage growth for April was revised up to 0.6 per cent.

"Improving labour markets are clearly having a positive impact on wage growth," said Mr Scott Hoyt, an analyst at Economy. com.

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In the five months to May, gross incomes have been rising at an annualised 8 per cent.

The picture of rising incomes was marred slightly by stronger inflation figures, which ate into disposable incomes.

The personal consumption expenditure (PCE) price index rose by 0.5 per cent in May.

The figure reinforced expectations that the Federal Reserve would launch a series of interest rate rises tomorrow.

The yield on the 10-year Treasury bond rose seven basis points to 4.72 per cent.

The core PCE - which excludes volatile food and energy prices - climbed just 0.2 per cent in May. But this has left underlying inflation running at 2.3 per cent annualised in the first five months of the year.

"It is not that inflation is higher," said Mr Bruce Kasman, chief US economist at JP Morgan. "It is simply that inflation is high relative to the 1 per cent Fed funds rate that we have at the moment. This will keep up the pressure on the Fed to start bringing rates up at a relatively brisk pace."