The latest data from the Bureau of Labor Statistics reveals that the Employment Cost Index (ECI) has shown a notable slowdown in wage growth, signaling a return to more typical levels. During the second quarter, the ECI increased by 0.9%, a decrease from the 1.2% rise observed in the previous quarter and the slowest quarterly advancement in three years.
On an annual basis, wages and benefits saw a growth rate of 4.1%, slightly lower than the previous figure of 4.2%. This data deviated from the expectations of economists, who had forecasted a quarterly gain of 1% and an annual increase of 4.3%.
The surge in worker compensation during the post-pandemic economic recovery was driven by high consumer demand surpassing the available labor supply. While the substantial wage increases were not the primary cause of the inflation surge, concerns lingered that continued strong pay growth could further elevate prices.
The Federal Reserve favors the ECI as a key indicator of compensation trends due to its comprehensive nature, encompassing not only wages but also the costs of benefits provided to employees.
Although compensation growth has decelerated since reaching a peak of 5.1% two years ago, it still exceeds pre-pandemic levels. In 2019, annual wage gains averaged close to 2.8%, according to BLS data.
These recent developments in employee compensation costs offer valuable insights into the evolving dynamics of the labor market and its implications for broader economic trends.
