US Employment Cost Index: Wage Gains Slow and May Help Reassure Federal Reserve
By The U.S. Bureau of Labor Statistics’ Employment Cost Index (ECI) is a key measure used by the Federal Reserve to track inflation and wage pressures.[0] The latest ECI, released Tuesday, showed that real wages and salaries declined 1.2% year-over-year in the three months ended in December. Once adjusted for inflation, wages and salaries decreased 1.2% over the year ending in December. This is a slight improvement from the 3% drop in the year ending in September.
The ECI also found that wages and salaries for private-sector workers rose 1% in the October-December period, down from 1.2% in the third quarter.[1] Benefits increased 0.8%, down from 1% in the same period.[2]
The report is unlikely to change the Fed’s plans to tighten credit further in the short term.[3] However, it may help reassure the Federal Reserve that wage gains won’t fuel higher inflation and that labor-cost pressures are easing in the parts of the economy where the Fed is most concerned about inflation.[4]
University of Massachusetts economist Arin Dube noted that “new measure of wages in [the] core services sector shows rapid reduction in nominal wage growth, which is additionally shown to predict future dis-inflation.”[5]
The Fed is widely expected to raise rates by a quarter of a percentage point Wednesday, which would mark its eighth consecutive increase and the smallest in almost a year.[6] It is expected that an additional quarter-point increase will occur in March, after which there will be a break before one or two reductions take place before the conclusion of the year.[2]
0. “On The Money — Fed drives down wage growth” The Hill, 1 Feb. 2023, https://thehill.com/newsletters/business-economy/3838554-on-the-money-fed-drives-down-wage-growth/
1. “Private-Sector Wage and Salary Increases Slightly Slow in 4th Quarter” SHRM, 31 Jan. 2023, https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/employment-cost-index-fourth-quarter-2022.aspx
2. “Important wage inflation measure for the Fed rose less than expected in Q4” CNBC, 31 Jan. 2023, https://www.cnbc.com/2023/01/31/employment-cost-index-q4-2022.html
3. “Worker pay, benefits see third straight slowdown” MyStateline.com, 31 Jan. 2023, https://www.mystateline.com/news/national/worker-pay-benefits-see-third-straight-slowdown/
4. “US wage growth slowing after rapid gains” Greater Baton Rouge Business Report, 31 Jan. 2023, https://www.businessreport.com/business/us-wage-growth-slowing-after-rapid-gains
5. “White House drops new wage measurement as Fed ponders more rate hikes” msnNOW, 8 Feb. 2023, https://www.msn.com/en-us/money/markets/white-house-drops-new-wage-measurement-as-fed-ponders-more-rate-hikes/ar-AA17gaLG
6. “Fed's Grip on Markets Thrusts Secondary Wage Data Into Spotlight By Bloomberg” Investing.com, 31 Jan. 2023, https://www.investing.com/news/economic-indicators/feds-grip-on-markets-thrusts-secondary-wage-data-into-spotlight-2992419
