Watching Greenspan watch the US economic data

Latest figures show temperance on wage hikes. Will that reduce inflation concerns?

For the next several weeks, Wall Street seems sure to be engaged in a game of "Will He or Won't He?"

With each new statistic on the US economy that emerges from Washington, investors and analysts are weighing it for its impact on the interest-rate decision of Alan Greenspan and his Federal Reserve colleagues, scheduled to meet next on Aug. 22.

Yesterday, the numbers under scrutiny were employment costs for the second quarter, and orders for costly manufactured goods.

Labor costs - what employers pay workers in the form of wages and benefits - rose 1.0 percent in the three months ending in June, below the 1.4 percent increase in the first quarter. The figure also fell slightly short of expectations, which many economists put at a 1.1 percent gain.

Year over year, labor costs are up 4.4 percent for 2000, the highest gain in nine years. Economists worry that these costs, though benefiting workers, will eventually result in higher prices for consumers, as companies pass on wage costs to buyers.

"This needs to be of concern to the Fed," says Richard DeKaser, chief economist of National City Bank, Cleveland.

Part of the labor-cost gains are attributed to health plans. Health costs have begun rising faster again after a few years' hiatus, when health maintenance organizations kept them under control.

"This could be the basis for Alan Greenspan clamping down and raising [interest] rates," says Dean Baker, an economist at the Center for Economic and Policy Research in Washington.

Other economists, however, disagree. "It is nothing terribly worrisome yet," said Anthony Karydakis of Banc One Capital Markets in Chicago.

Business productivity has been rising at a 3.7 percent annual rate. This is enough to cover much of the rise in wage costs. However, the Fed's goal is to slow the economy - a move that Mr. Greenspan says typically brings down productivity gains as well.

In a separate report, durable-goods orders in June were up a hefty 10 percent, driven largely by strong orders for commercial aircraft. That, combined with other recent statistics, makes it "a little more likely" the Fed will raise interest rates again, says Mr. Baker.

(c) Copyright 2000. The Christian Science Publishing Society