Reflecting further acceleration in wages & salaries and another solid gain in benefit costs, the Employment Cost Index (ECI) increased a stronger-than-expected 0.7 percent in the third quarter.
Tightening Labor Market Lifts Employment Costs
- Beating expectations for the second straight quarter, the year-over-year pace of total employment costs, at 2.2 percent, is rising at the fastest rate since Q2 2011. Cost performance in both the private and government sectors reflect this acceleration, with year-over-year rates also at multi-year highs.
- Total wages & salaries increased 0.8 percent on the quarter, the fastest rise since Q2 2008. Total benefit costs rose 0.6 percent.
Has the Fed’s Missing Slack Piece Been Found?
- Acknowledging further progress, the Fed’s updated policy statement noted that the “underutilization of labor resources is gradually diminishing”. With the U.S. economic expansion exhibiting deepening signs of self-sustaining growth, conditions are becoming more favorable for wage inflation to accelerate further in the coming year. Continued wage improvement only strengthens the Fed’s hand for a rate hike next year.
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