Wall Street tumbles 2% as labour costs rise

WALL STREET tumbled more than 2 per cent yesterday after figures showed labour costs surged at their fastest rate for five years, while productivity gains were the slowest for a year.

The Dow Jones fell 205 points immediately after the release of the data, which raised the chances of an interest rate hike as soon as next month. The dollar and government bonds both fell to three-week lows.

Rate worries were heightened by comments by a member of the Federal Reserve Board who said it would be "premature" to rule out a third successive hike.

The fall came within a few ticks of the 210-point level that would have triggered stock exchange trading curbs. The Dow recovered to be down 150 points by midday.

The rise in second-quarter unit labour costs was revised up to 4.5 per cent from 3.8 per cent, much higher than the forecast 4.0 per cent and the steepest rise since the second quarter of 1995.

Productivity of the United States worker, which measures output per hour, rose 0.6 per cent, a downward revision from 1.3 per cent and the smallest since the second quarter of 1998. Economists had expected a figure of 1.1 per cent.

Analysts said that the figures showed that businesses were finding it hard to offset rising labour costs - a major concern of Alan Greenspan, the Federal Reserve chairman. "Given Greenspan's emphasis on productivity as the key to continued prosperity, the numbers look sad," said Scott Brown, an economist at Raymond James in Florida.

But Ian Shepherdson, of High Frequency Economics, said the market had been more unnerved by comments made by Edward Kelly, a member of the Fed's rate-setting committee.

Mr Kelly agreed it was "premature" to rule out another hike and said that the Fed was prepared to act on the crucial non-farm pay roll figure later today showed wages rising.

Mr Shepherdson said: "If these pay roll figures are anything that might be called strong, them rates are going up in October."

Meanwhile US factory orders rose 2.1 per cent in July, the fastest pace this year, boosted by strong demand for durable goods, industrial and electronic equipment.

The gain was the eleventh in the past 14 months and beat forecasts of a 1.8 per cent rise.

The euro pushed to $1.0730, its highest level against the dollar since 10 August. US bonds fell for the fifth day out of six, pushing yields to three-week highs.

Start your day with The Independent, sign up for daily news emails
Life and Style
tech
Arts and Entertainment
Rocky road: Dwayne Johnson and Carla Gugino play an estranged husband and wife in 'San Andreas'
filmReview: In the face of all-round devastation, even Dwayne 'The Rock' Johnson appears a little puny
News
i100
Arts and Entertainment
Bright lights, big city: Melrose Avenue in Los Angeles by dusk
books
Sport
Harry Kane makes Paul Scholes' Premier League team of the season
footballPaul Scholes on the best players, managers and goals of the season - and the biggest disappointments
News
i100
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor