The Employment Cost Index (ECI) matched expectations and increased by 0.6% in the fourth quarter. The ECI is now 2.0% higher than a year ago, hence still quite modest. The quarter-on-quarter annualised change in private sector wages was just 0.4%. Total wages and salaries rose by 0.6% and benefits by 0.7%. Total wages and salaries for the private sector are again 2.1% higher, while benefits are up just 1.3%.
By sector, information technology continues to report surprisingly weak compensation changes; it is surprising because this is one area that continues to see strong demand for highly skilled employees.
This index remains the best measure of compensation costs as it adjusts for industry shifts in employment (e.g., hamburger flippers becoming investment bankers and vice versa), which if not adjusted for (as is the case with the average hourly earnings measure), can often skew the data, particularly at major economic turning points such as today. This report is also useful in that it breaks down the benefits and wages and salaries components of compensation. This report is also useful in that its breaks down the benefits and wages and salaries components of compensation. Whereas the benefits component has been a key driver of compensation cost increase in recent years, these are now rising well below gains in the wages component. Overall, this report points to further progress, but again, there seemingly would be no great hurry to increase interest rates to head off a wage-driven inflation spiral.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets