U.S. Wages Rose Rapidly in Third Quarter, Keeping Pressure on Inflation

On a quarterly basis, wages and benefits rose a seasonally-adjusted 1.2% in the third quarter from a 1.3% increase in the second quarter. The third-quarter gain matched economists’ expectations.

Wages and benefits have been increasing rapidly since the middle of last year as employers competed for workers in a tight labor market.

The report follows government figures released Thursday showing that the U.S. economy expanded at a solid pace in the third quarter despite climbing interest rates and signs of easing consumer and business demand.

The labor market cooled a bit, with monthly job growth slowing, but it remained strong through the third quarter. Employers shaved down the number of job openings and took longer to fill positions as they reassessed growth prospects and future consumer demand. The unemployment rate fell in September to a level matching a half-century low, and new claims for jobless benefits, a proxy for layoffs, are hovering around 2019 average levels.

The Federal Reserve is raising interest rates aggressively to combat high inflation and is likely to approve another 0.75 percentage point increase at its meeting next week. The central bank lifts borrowing costs to curb spending, hiring and investment and to reduce price pressures.

So far, that “process has been very gradual, almost orderly,” said

Julia Coronado,

president of MacroPolicy Perspectives LLC.

Some employers and staffing agencies say they see wage pressures beginning to ease.

David Weilert, president of Catoosa, Okla.-based Viking Packing Specialist, an industrial packaging manufacturer, said a tight labor market has led him to seek out employees he wouldn’t have previously considered.

In recent months, to deal with urgent staffing needs, he turned to a state program that contracts out workers from a local prison for $27 an hour. That was significantly more than he would pay a worker on the open market, or through the temp agency he often relies on, which charges $19 an hour, of which $13 goes to the worker, Mr. Weilert said.

More recently, however, hiring has become easier, making him less likely to rely on prison workers, he said.

“We’re weaning ourselves off that program because we’re seeing more and more people who are willing to work for $15 an hour,” Mr. Weilert said.

Recruiters report that the intense competition for workers earlier this year has declined recently and employers have become pickier about whom they hire or whether they decide to fill a position.

“Many clients are becoming more selective and requesting to see more candidates for their open positions,” said M. Keith Waddell, chief executive of

Robert Half International Inc.,

a recruiting firm, on an earnings call last week.

Some businesses, especially those with narrow profit margins, such as grocery stores, are trying to limit pay increases to avoid scaring off customers by raising prices too much.

Stew Leonard Jr.

, chief executive of Connecticut-based Stew Leonard’s grocery stores, has felt a particular squeeze because of his company’s focus on labor-intensive prepared foods, such as pico de gallo and cheese danish pastries.

The company is hiring 1,000 seasonal workers to handle holiday catering and Christmas tree sales, most of whom will make $16 or $17 a hour, up from $15 last year.

“We haven’t been able to pass all these costs on to the consumer. They’re up to their necks right now with prices,” Mr. Leonard said. “This will not be any spectacular year for us, but we’ll do OK.”

Write to Gabriel T. Rubin at [email protected]

On a quarterly basis, wages and benefits rose a seasonally-adjusted 1.2% in the third quarter from a 1.3% increase in the second quarter. The third-quarter gain matched economists’ expectations.

Wages and benefits have been increasing rapidly since the middle of last year as employers competed for workers in a tight labor market.

The report follows government figures released Thursday showing that the U.S. economy expanded at a solid pace in the third quarter despite climbing interest rates and signs of easing consumer and business demand.

The labor market cooled a bit, with monthly job growth slowing, but it remained strong through the third quarter. Employers shaved down the number of job openings and took longer to fill positions as they reassessed growth prospects and future consumer demand. The unemployment rate fell in September to a level matching a half-century low, and new claims for jobless benefits, a proxy for layoffs, are hovering around 2019 average levels.

The Federal Reserve is raising interest rates aggressively to combat high inflation and is likely to approve another 0.75 percentage point increase at its meeting next week. The central bank lifts borrowing costs to curb spending, hiring and investment and to reduce price pressures.

So far, that “process has been very gradual, almost orderly,” said

Julia Coronado,

president of MacroPolicy Perspectives LLC.

Some employers and staffing agencies say they see wage pressures beginning to ease.

David Weilert, president of Catoosa, Okla.-based Viking Packing Specialist, an industrial packaging manufacturer, said a tight labor market has led him to seek out employees he wouldn’t have previously considered.

In recent months, to deal with urgent staffing needs, he turned to a state program that contracts out workers from a local prison for $27 an hour. That was significantly more than he would pay a worker on the open market, or through the temp agency he often relies on, which charges $19 an hour, of which $13 goes to the worker, Mr. Weilert said.

More recently, however, hiring has become easier, making him less likely to rely on prison workers, he said.

“We’re weaning ourselves off that program because we’re seeing more and more people who are willing to work for $15 an hour,” Mr. Weilert said.

Recruiters report that the intense competition for workers earlier this year has declined recently and employers have become pickier about whom they hire or whether they decide to fill a position.

“Many clients are becoming more selective and requesting to see more candidates for their open positions,” said M. Keith Waddell, chief executive of

Robert Half International Inc.,

a recruiting firm, on an earnings call last week.

Some businesses, especially those with narrow profit margins, such as grocery stores, are trying to limit pay increases to avoid scaring off customers by raising prices too much.

Stew Leonard Jr.

, chief executive of Connecticut-based Stew Leonard’s grocery stores, has felt a particular squeeze because of his company’s focus on labor-intensive prepared foods, such as pico de gallo and cheese danish pastries.

The company is hiring 1,000 seasonal workers to handle holiday catering and Christmas tree sales, most of whom will make $16 or $17 a hour, up from $15 last year.

“We haven’t been able to pass all these costs on to the consumer. They’re up to their necks right now with prices,” Mr. Leonard said. “This will not be any spectacular year for us, but we’ll do OK.”

Write to Gabriel T. Rubin at [email protected]