The first quarter Employment Cost Index (ECI) remained on trend and on expectations for solid increases in wages and salaries, and with continued upward pressure on benefits costs. The index was up 0.7% quarter-over-quarter and 2.8% higher year-over-year. There has not been any material difference in the pace of increases for compensation for the past four or five quarters. There has been some variation in whether costs are rising faster for wages and salaries or for benefits, or across sectors. Early in 2018, employers were offering larger incentives to attract and retain workers in nonwage forms like better benefits. However, by the second half of 2018 the focus shifted to dollar compensation in the form of higher wages and salaries.
The FOMC will not find much evidence that employment costs are seeping into broader prices — yet. But the Committee will find reason to remain alert to the possibility with little sign that rising costs are going to ease up as long as the labor market is tight.
Wages and salaries – which account for about 70% of the index — were up 0.7% and benefits costs – which account for the remainder – were up 0.7%. Compared to the first quarter 2018, pay was up 2.8%, below the 3.0% in the fourth quarter and 2.9% in the third quarter 2018. However, it is still among the strongest gains since up 3.1% in the third quarter 2008. The upshot is that in the past three quarters, wages and salaries are rising at the fastest pace since the recession.
Benefits – which account for the remainder of employment costs – were also up 0.7% in the first quarter and up 2.9% compared to a year ago. This was off the 3.1% increase in the fourth quarter 2018 and matched the third quarter’s up 2.9%. Benefits increases haven’t seen these gains since 2008 as well and medical insurance isn’t the only significant driver of costs. Employers have expanded leave time, are providing training, and offering subsidies for things like child care.
Compensation for goods producers was up 0.9% quarter-over-quarter, while service providers and state and local governments were both up 0.7%. However, compared to a year-ago, goods producers were up 2.5%, while service providers were up 2.9% and state and local government was up 3.0%.
The quarterly increase for goods producers reflected increases in wages and benefits. Service providers raised wages and salaries, but less so for benefits. State and local government wage and salary increases lagged but had solid increases for benefits that probably reflected negotiations in some large school districts.
The year-over-year gains by industry showed wages and salaries were rising firmly and consistently, although state and local governments accelerated more than goods producers or service providers. Compared to the first quarter last year, upward pressures on costs are increasing across the board.
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