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Q4 Employment Cost: Modest Wage Gains Continued

January 31, 2018
Bottom Line: Despite continued strength in job creation, the trend in employment costs rose only modestly in 2017 after staying flat for several years. The Employment Cost Index rose by 0.6% during the 4th Quarter, in-line with market expectations. Wages and Salaries rose by 0.6% and are now 2.8% above their year ago level. Benefits cost growth has decelerated and has lagged gains in wages. Modestly employment cost growth also means modest growth in compensation for employees, which is the raw material for personal income which, in turn, supports consumer spending. Consequently, consumer spending growth should remain "modest to moderate", as the Fed often characterizes activity.

The Employment Cost Index ROSE by 0.6% during the 3 months ended in December 2017, compared with market expectations for an increase of 0.6%.

Labor compensation is 2.7% 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 2.5% 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 2.6% 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.