Wall Street Cheers News On Inflation Three Reports Suggest Costs Not Spiraling Out Of Control
Though hardly cheery news for America’s employees, a report of a smallish increase in wages and benefits sent financial markets soaring Tuesday. The Dow Jones average of industrial stocks surged 179.01 points, the second-biggest point gain ever.
Other reports showing a sag in consumer confidence and a sharp drop in factory orders underscored the message that accelerating inflation may not be such an imminent threat.
That means the Federal Reserve may be able to avoid ratcheting up interest rates as much as investors had feared during the past month and a half of turmoil on Wall Street.
Tuesday’s advance in the Dow Jones average, to a close of 6,962.03, was the largest point gain since a record 186.84-point spurt on Oct. 21, 1987, in the aftermath of the Black Monday crash. The increase of 2.64 percent was the biggest in 5-1/2 years but was not close to any record.
The average now has recovered more than 80 percent of the nearly 700-point loss it suffered between March 11 and April 11.
Bond prices advanced sharply, too, pushing down interest rates on credit markets. Yields on 30-year Treasury bonds - a barometer for borrowing costs ranging from home mortgages to business loans - fell from 7.11 percent Monday to 6.98 percent, the lowest in a month.
Wages and benefits rose a modest 0.6 percent in the January-March quarter, the Labor Department said. That was in the low end of the range for gains in the Employment Cost Index over the past two years and only two-thirds of the 0.9 percent predicted by economists.
“There are just no labor cost pressures visible in the economy even though the unemployment rate is so low,” said economist Bruce Steinberg of Merrill Lynch in New York. “Companies can’t easily raise prices without losing market share. That makes them wary about handing out big pay packages.”
Economists predicted the modest advance in labor costs wouldn’t deter Federal Reserve policy-makers from raising short-term interest rates a second time when they meet in three weeks.
“But it argues rates shouldn’t go up more than a quarter-point at a shot and perhaps … the Fed can move a bit more slowly,” said economist Mark Zandi of Regional Financial Associates in West Chester, Pa.
The first increase in more than a year, a quarter of a percentage point, came on March 25.
Meanwhile, the Commerce Department said orders to factories for big-ticket durable goods unexpectedly plunged 3 percent in March, the biggest decline in seven months. February orders were weaker than initially reported.
And the backlog of unfilled orders recorded the first decrease since August. That suggests any threat of inflationary bottlenecks developing in the manufacturing pipeline is receding.
Also, consumer confidence dropped for the second straight month in April, falling more than anticipated, said the New York-based Conference Board, a business group.
That’s a hint that consumers, whose spending fueled strong economic growth in the first quarter, may pull back somewhat as the year progresses.
Nevertheless, Zandi said, a pickup in inflation late in the year still is quite possible. From that standpoint, the compensation report wasn’t wholly benign.
Salaries and wages - nearly three-fourths of total compensation - rose a seasonally adjusted 0.9 percent, the most in a year. That was tempered, though, by a scant 0.1 percent rise in benefits.