Labor Costs Stagnant

The U.S. employment cost index rose just 0.2% in the second quarter, the smallest increase in 33 years.
Katie Kuehner-HebertJuly 31, 2015
Labor Costs Stagnant

Compensation costs for U.S. civilian workers, better known as the Employment Cost Index, rose a mere 0.2% in the second quarter — the smallest increase in 33 years, the Labor Department said Friday.

Wages and salaries, which make up about 70% of compensation costs, were also little changed at 0.2%, and benefits, which make up the remaining 30%, inched up 0.1%. In the first quarter, the EC index rose 0.7%.

Compensation in the services sector nudged up 0.1% in the second quarter, being up 0.6% in the prior period. Compensation in goods-producing sectors rose 0.7%.

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Economists polled by Reuters had forecast the employment cost index would rise 0.6%.

“This data has periodically proved to be very lumpy and the sharp deceleration is inconsistent with other measures of wage inflation that are trending higher, not falling off a cliff,” TD Securities chief economist Eric Green told Reuters.

The figures do not point toward a material slowing in wage growth, as commissions inflated worker compensation at the start of the year, Green said. Labor market slack has diminished significantly over the last few years, which is expected to start putting upward pressure on wages.

In the 12 months through June, labor costs rose 2%, the smallest 12-month increase since last year and further below the 3% threshold that economists say is needed to bring inflation closer to the Fed’s 2% medium-term target, according Reuters.