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Economy in Brief

U.S. Employment Cost Index Steady At 0.8% Quarterly Increase
by Tom Moeller January 31, 2008

Rising 0.8% last quarter, the employment cost index for private industry workers remained steady with the 3Q increase. The gain matched Consensus expectations. Moreover, the gain in total compensation in 4Q was roughly steady at 3.0% with the gains since 2005.

During the last twenty years there has been a 54% correlation between the growth in employee compensation and the rise in the PCE price index. That level of correlation goes neither up or down, when either series is led or lagged the other. This suggests a self reinforcing effect between the two series.

Wage and salary growth held at the 0.8% rate of 3Q. Wages account for roughly 70% of the compensation index. Wages in the services industries rose 0.8% (3.3% y/y). Wages in the leisure & hospitality sector have been relatively strong with a 4.2% rise and professional & business services wages also have been strong with a 4.0% y/y gain. Wages in the goods producing industries rose 0.9% (2.5% y/y) have lagged.

The gain in benefit costs also held about steady with a 0.9% 4Q rise. For all of last year, the 2.4% growth rate was the lowest since 1997. The slowdown has been pronounced in most service industries, but perhaps most pronounced in the goods producing sector where a 1.4% y/y growth rate last year is down from 8.7% growth in 2004.

The slowdown in benefit cost inflation for the year is due in part to a more moderate rise in the cost of health benefits:up 4.8% last year versus 10%+ rates of gain in 2002 and 2003.

ECI- Private Industry Workers 4Q '07 3Q '07 2Q '07 4Q Y/Y 2007 2006 2005
Compensation 0.8% 0.8% 0.9% 3.0% 3.1% 2.9% 3.1%
  Wages & Salaries 0.8% 0.8% 0.8% 3.4% 3.4% 2.9% 2.5%
  Benefit Costs 0.9% 0.8% 1.1% 2.4% 2.4% 2.9% 4.6%
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