Signs Indicate Economic Vitality Workers’ Wages, Benefits Barely Budge

Fresh signs of economic vitality without inflation appeared Tuesday as the government reported the second-highest new home sales of the year and the smallest employment cost increase on record.

Two private reports appeared to confirm a vigorous economy, with one reporting an expanding manufacturing sector and the other strong consumer confidence.

“Without inflation, the economy is encountering no real impediments and can continue on its present growth path indefinitely,” contended economist Eugene Sherman of M.A. Schapiro & Co. in New York.

“They show solid growth without inflation, and that consumers are feeling pretty good about it,” economist David F. Seiders of the National Association of Home Builders said of the reports.

The government had reported last Friday that the economy grew at a 4.2 percent annual rate during July, August and September, about three times the pace of the previous three months.

The latest reports initially sparked a rally on Wall Street, but it faded in a flurry of profit-taking. The Dow Jones industrial average closed down 1.09 at 4,755.48. Bonds also lost earlier gains.

The Commerce Department said Tuesday that sales of new homes rose 3.3 percent in September, to 727,000 at a seasonally adjusted annual rate, from 704,000 in August.

The total was second in 1995 only to the 792,000 rate in July. It marked the first time in nearly two years that sales had topped 700,000 for four straight months.

The housing industry went into a slump earlier this year after mortgage rates topped 9 percent. But it has rebounded recently, with rates dropping to 7.5 percent last week. That would mean a savings of more than $100 a month on a $100,000 mortgage.

But most analysts expect sales to level off for the remainder of the year, and the regional sales mix appeared to suggest such a plateau. Sales were up in the Midwest and West, but fell in the Northeast and South.

Still, observers noted that sales remained at relatively high levels, which should spark still more growth in the economy.

“Housing is important in itself, but also for its echo effects,” Sherman of M.A. Schapiro said. “Sales trigger a lot of consumer spending for household items, such as furniture, drapes, appliances and carpets, and for services - landscaping, electricians, plumbers.”

In a second report, the Labor Department said American workers’ wages, salaries and benefits rose 2.7 percent in the year ended Sept. 30, the tiniest increase since it began tracking compensation in 1981.

The Employment Cost Index is considered one of the best gauges of wage inflation pressures since compensation represents about twothirds of a product’s cost.

Wages and salaries - nearly threefourths of labor costs - rose 2.8 percent in the year ended Sept. 30, even less than the 2.9 percent advance a year earlier.

Benefits increased 2.2 percent, down from a 3.8 percent advance a year ago and also the smallest gain on record. Benefit increases were held back in large part by declining healthcare costs.

The report said employment costs for workers in private industry, the broadest measure of labor costs, increased 2.6 percent during the year ended Sept. 30, also the smallest gain on record.

Meanwhile, the Chicago Purchasing Management Association’s index of business activity rose to 53.4 this month, up from 49.0 in September. A reading above 50 denotes expansion in the manufacturing sector.

Many analysts see the Chicago index as a preview of the national manufacturing survey that comes out today.

Although the Conference Board’s measure of consumer confidence fell marginally in October, it remained at a level depicting healthy economic growth. The New York business research group said its index stood at 97 this month, down from 97.3 in September.