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The numbers: The U.S. employment cost index rose 1.2% in the third quarter, down slightly from a 1.3% gain in the April-June quarter, the Labor Department said Friday.


Over the past year, the ECI rose at a 5% rate, compared with a 5.1% rate in the second quarter.

Economists polled by the Wall Street Journal had expected employment costs to rise at a 4.8% rate in the third quarter.

Key details: Private sector wages rose 1.2% in the third quarter, down from 1.6% in the prior three months. Wages make up 70% of total compensation. Year-over-year, wages rose at a 5.2% rate compared with a 5.7% rate in the April-June quarter.

Private-sector benefits increased 0.8% in the third quarter after a 1.3% gain in the prior three months. Year-on-year, benefits rose at a 5% rate, down from 5.3% in the second quarter.

Big picture: Economists say the Federal Reserve pays close attention to the ECI because it shows the underlying trend of inflation in the labor market. It is broader than the monthly average hourly earnings data and adjusted for industry composition. Labor costs tend to get marked into selling prices. Fed Chair Jerome Powell said a hot ECI reading led him to change his views on inflation.

Looking ahead: “While a move in the right direction, the data show that still-strong demand for labor continues to keep compensation elevated. These readings will only help support the Fed’s current hawkish policy stance,” said Rubeela Farooqi, chief U.S economist at High Frequency Economics.

Market reaction: U.S. stocks


were set to open lower while the yield on the 10-year Treasury note

rose to 4.04%.

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