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First Cut: ECI for fourth quarter 2018 points to upward pressure on wages and salaries continuing

The Employment Cost Index for the fourth quarter 2018 rose 0.7% quarter-over-quarter and was up 2.9% compared to a year earlier. The quarter-over-quarter comparison was a notch below market expectations, if in line with the recent trend. The year-over-year gain hints at continued mild upward pressure on overall employment costs.

Wages and salaries – which account for 70% of the total — increased 0.6% in the fourth quarter from the third and was slower than the up 0.9% in the third quarter. However, year-over-year wages and salaries were up 3.1%, the strongest since up 3.1% in the December 2008 quarter. Wage increases are on the cusp of returning to pre-recessions levels.

Benefits costs rose 0.7% in the fourth quarter from the third after a 0.4% increase in the prior quarter-over-quarter index. Compared to a year earlier, benefits costs were up 1.2%.


A look over the industry and occupational groups shows that increases in compensation were broad-based and solid. There were a few pockets that fared better than others, mainly in service occupations (+1.0%). It would suggest that the tight labor market is allowing workers at more skill levels to improve their earnings.


The data point to an interesting shift in compensation. In the first half of 2018 employers showed more favor in increasing non-wage benefits to attract and retain workers, the second half the emphasis was more on increasing wages. So far there is little evidence that higher incomes will lead to higher prices and a necessity for the FOMC to act to keep inflation from heating up. However, the potential for the situation has grown.

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