Summary The 1.3% jump in the Employment Cost Index, the strongest since the series began in 2001, underscores that workers hold a degree of bargaining power unseen in decades. Strength across industries suggests inflation pressures are broadening out. While we expect wage growth to slow over the second half of 2022, as more workers return to the jobs market, the near-term pressure on labor costs will keep inflation elevated over the next few quarters and make it difficult to settle back to the Fed’s 2% target anytime soon. Rising Labor Costs to Fan Inflation Fears The widely watched average hourly earnings series from the monthly employment report continued to grow at a head-turning rate in Q3, rising 1.3% between June and September. That was matched by the Fed’s preferred measure of labor compensation, the Employment Cost Index (ECI), also rising 1.3% over the quarter. The rise in ECI is arguably more alarming for businesses’ bottom lines. The ECI is broader than the average hourly earnings series, incorporating public sector workers in addition to benefit costs. What’s more, the index controls for compositional shifts in the workforce, which have been unusually large over the past year. The highest quarterly rise in the ECI since records began in 2001 shows another way inflation pressures are broadening out. READ FULL ARTICLE>>
