US Labor Costs Slow in 3rd Quarter as Wage Gains Trend Lower

Compensation costs for workers slowed in the three months ending in September as wage pressures continued to ease.
The July–September reading came in below the consensus estimate of 0.9 percent.
Benefits and wages increased by 0.8 percent, down from the second quarter.
In the 12 months ending September, civilian workers’ compensation costs rose by 3.9 percent, down from 4.3 percent for the year ending in September 2023. Wages and salaries climbed by 3.9 percent year over year, down from 4.6 percent in the previous 12-month period.
ECI data highlighted a compensation gap between private and public sector workers.
Liz Young Thomas, the head of investment strategy at finance company SoFi, expects further wage deceleration after the latest headline ECI and private-sector ECI numbers.
In the immediate aftermath of the pandemic, employers became desperate for workers, with a record 12.2 million job vacancies. While job openings have fallen to below 8 million, wage gains have also decreased.
The data indicate slowing wage growth as the overheated U.S. labor market continues to be hampered by various factors, be it the effects of elevated interest rates or slowing demand.
The increase in year-over-year average hourly earnings surged to 5.9 percent in May 2022. By September, it decelerated to 4 percent.
Year-ahead earnings growth expectations in the New York Fed’s Survey of Consumer Expectations have flatlined over the past two years.
Market watchers monitor the quits rate as a potential wage growth indicator. If workers voluntarily leave their jobs, the greater employment mobility could signal that they think they can find a better-paying job elsewhere as companies attempt to attract and retain talent.
New York Fed economists say the quits rate and vacancies per searcher metrics are “the most strongly correlated with wage inflation.”
Cumulative inflation has surged by nearly 21 percent since January 2021. By comparison, wages have climbed by more than 17 percent in the same span.
The annual report concluded that Americans’ paychecks are poised to recover completely by the second quarter of 2025.
“What was a previously red-hot job market is now a pretty normal-ish job market. Bargaining power, broadly speaking, has also moderated and normalized,” Mark Hamrick, senior economic analyst at Bankrate, said in a Bankrate article detailing the effects of inflation on wages.
Despite the slowdown in the headline employment numbers, wage gains remain solid and have been evenly distributed, Elise Gould, senior economist at the Economic Policy Institute, said.
“Growth at the higher end isn’t anything to sneeze at, but the fact that it’s faster at lower parts of the wage distribution means that we’ve seen a compression in wages at least among the bottom 90 percent of the workforce, meaning a reduction in inequality.”