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First Cut: 2Q Employment Cost Index rises at slightly slower pace than 1Q

The Employment Cost Index (ECI) for the second quarter was up 0.6% from the first quarter, a mild downtick from the up 0.7% in the prior quarter. Year-over-year, the index was up 2.7%, slipping one-tenth from the 2.8% in the first quarter and 2.9% in the fourth quarter 2018.

Wages and salaries were up 0.7% from the prior quarter and remained on trend. It was a slowing in benefits costs to up 0.5% in the second quarter from 0.7% in the first quarter that accounted for the downturn in overall compensation. Compared to the year-ago quarter, wages and salaries were up 3.0%, and still at the high end of recent increases. Benefits costs were up 2.9% year-over-year in the second quarter, the same as in the first quarter.

In spite of some quarter-to-quarter fluctuations, the underlying trend is still firm. It would appear that businesses are still having to increase wages and salaries to attract and retain workers, while the impetus for higher benefits — sometimes offered in preference to higher pay — has faded as a recruitment tool.

Pay and benefits have been on the rise for state and local government, in part reflecting a resurgence in costs as education unions fight back against further erosion of compensation and cuts to overall budgets for school districts.

In any case, the pace of increase for wages and salaries, and benefits has yet to make an appearance in overall inflation or threaten price stability. It may yet happen, but so far businesses have by-and-large been able to contain costs and there has been little pass-through to broader prices.

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