Stocks, Bonds Surge On Labor Cost Report; Numbers Seen as Sign Inflation Will Stay Low
The stock and bond markets staged strong rallies yesterday after the Labor Department reported that employers' labor costs rose slowly in the July-September period, a sign that inflation is likely to remain low.</br></br>The Labor Department's employment cost index, or ECI, rose 0.6 percent in the third quarter, significantly below the 0.8 percent increases posted in the first and second quarters. The ECI covers employers' costs for fringe benefits as well as wages and salaries, and is widely regarded by many analysts and policymakers as the best available measure of changes in labor costs.</br></br>Bond prices rose sharply on the news because many investors and analysts had expected that the tight labor markets in many parts of the country would cause a jump in labor costs. Had that occurred, it might have added to inflationary pressures throughout the economy and caused the Federal Reserve to raise short-term interest rates to keep those pressures under control.</br></br>"Bottom line, this was just flat out a low-inflation report," said economist Ed Hyman at International Strategy and Investment Group Inc. in New York. "This seems almost too good to believe. . . . We've missed the inflation bullet."</br></br>Yields on 30-year U.S. Treasury bonds fell to 6.68 percent from 6.83 percent and their prices, which go up when yields go down, rose almost $20 per $1,000 bond.