US employment costs unexpectedly accelerated in the third quarter, heightening concerns that a strong labor market risks keeping inflation above the Federal Reserve’s target.
The employment cost index, a broad gauge of wages and benefits, increased 1.1% in the July-to-September period after rising 1% in the second quarter, according to Bureau of Labor Statistics figures released Tuesday. While wage growth picked up slightly within private industry, salaries at state and local governments surged.
The median estimate in a Bloomberg survey of economists called for a 1% rise.
Compared with a year earlier, the ECI was up 4.3%, the smallest annual advance since the end of 2021. Still, that’s well above the typical pace seen in the years before the pandemic.
While there are a number of other earnings metrics published more frequently — including average hourly earnings figures from the monthly jobs report — economists tend to prefer the ECI because it’s not distorted by shifts in the composition of employment among occupations or industries.
With Fed officials watching economic data closely for any signs that the job market is no longer easing, the surprise pickup in labor costs may fuel concerns that inflation will remain stubborn.
Policy Meeting
Policymakers are widely expected to leave the benchmark interest rate unchanged at the conclusion of their two-day meeting on Wednesday. Still, a sustained re-acceleration in wage growth risks spurring the central bank to raise borrowing costs further in coming months.
Wages and salaries for civilian workers rose 1.2% in the quarter and were up 4.6% from a year earlier. Pay for government employees climbed 1.8% from the prior quarter, the most in a year.
Adjusted for inflation, compensation grew at a slower annual pace. Low unemployment and positive real earnings growth has been a crucial part of the resilience of household spending. Data out last week showed a burst in consumer spending helped fuel the strongest economic growth in nearly two years.
--With assistance from Chris Middleton and Augusta Saraiva.
