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Q2 Employment Cost: Modest Wage Growth

July 29, 2016
Bottom Line: Despite the modest economic and labor market recoveries now underway, the trend in employment costs is now slightly better after staying flat for several years and a modest increase in 2015 and 2016. Subdued employment costs also mean subdued compensation for employees, which is the raw material for personal income which, in turn, supports consumer spending. Consequently, consumer spending growth should remain modest.

The Employment Cost Index ROSE by 0.6% during the 3 months ended in June 2016, in line with market expectations.

Labor compensation is 2.3% ABOVE its year ago level, modestly above the year-over-year increase in headline consumer inflation thus moving real labor compensation modestly higher. Employment cost inflation peaked at 4.4% in 2002

Wages and Salaries ROSE by 0.6% and are now 2.5% ABOVE their year ago level. Since late 2009, wage growth had flattened out at a very weak rate but is now rising modestly. Wages and salaries account for approximately 70% of total employment costs.

Benefit Costs ROSE by 0.5% and are now 2.1% ABOVE their year ago levels. The year-on-year gain had accelerated between late 2009 and mid-2011 but has retreated since then. Benefit costs account for approximately 30% of total employment costs.
Article by contingentmacro