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First Cut: Employment Cost Index remained on track in third quarter for modest, steady gains

The Employment Cost Index (ECI) for the third quarter was up 0.7% compared to the second quarter, and up 2.8% compared to the third quarter 2018. Neither suggests any change in momentum for the string of steady, modest gains for total compensation that has been in place for the past two years.

Wages and salaries were up 0.9% quarter-over-quarter and up 2.9% from the year-ago quarter. Benefits costs were up 0.6% from the prior quarter and up 2.9% compared to the third quarter 2018.

There has been very little fluctuation in the underlying pace of gains for overall employment at the headline for a long stretch. What is surprising is that there is no evidence that upward pressure on wages and salaries or benefits costs have seeped into overall inflation.

Where there is upward pressure, it seems to be in fields that are historically associated with unions — manufacturing and state and local employees. The strike at GM which ended in October won’t be reflected in the ECI until the fourth quarter, nor will the impact of the teachers strike in Chicago. However, earlier teachers strikes in large school districts have been effective in forcing long-delayed pay increases and improving benefits. Among manufacturers it hasn’t take strike activity to bring about higher wages and benefits. That was the result of shortages of skilled workers and a booming factory sector that dominated much of 2017 and 2018. Now that conditions in manufacturing have cooled, there may be less competitive pressure for skilled workers and therefore the need to raise compensation.

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