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Q3 Employment Cost: Modest Acceleration

October 31, 2019

Bottom Line: Deep into this cycle, wage gains continued to accelerate modestly in the 3rd Quarter. The employment cost index has been rising, albeit with periods of substantial volatility, for 10 years. The benefits component continues to decelerate as wages and salaries show accelerating gains. Wages and salaries for employees are the raw material for personal income which, in turn, supports consumer spending. While year-on-year gains are not back to the 2015 peak, growth in wages and salaries remains moderate, enough to support the trend rate of consumption.

The Employment Cost Index ROSE by 0.7% during the 3 months ended in September 2019, compared with market expectations for an increase of 0.7%.

Labor compensation is 2.8% ABOVE its year ago level, moderately above the year-over-year increase in headline consumer inflation thus moving real labor compensation moderately higher. Employment cost inflation peaked at 4.4% in 2002

Wages and Salaries ROSE by 0.9% and are now 2.9% ABOVE their year ago level. Wages and salaries account for approximately 70% of total employment costs.

Benefit Costs ROSE by 0.6% and are now 2.4% 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 Contingent Macro Advisors