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Q3 Employment Cost: Modest Gains

October 28, 2016

Bottom Line: Despite continued strength in job creation, the trend in employment costs is only rising modestly after staying flat for several years. The Employment Cost Index rose by 0.6% during the 3rd Quarter, in-line with market expectations for an increase of 0.6%. Wages and Salaries rose by 0.5% and are now 2.4% above their year ago level. Benefits costs had been lagging gains in wages but ticked higher in the latest quarter, growing at a year-on-year pace now nearly equal to that of wages and salaries. 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 September 2016, compared with market expectations for an increase of 0.6%.

Labor compensation is 2.2% 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 0.5% and are now 2.4% 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 0.7% and are now 2.3% ABOVE their year ago levels. Benefit costs account for approximately 30% of total employment costs.

Article by Contingent Macro Advisors