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Economy in Brief

U.S. Employment Cost Index Remains Weak, But State & Local Government Workers See Some Pickup
by Carol Stone July 31, 2009

Employment compensation remained sluggish in Q2, although it picked up slightly. The total employment cost index rose 0.4%, following Q1's 0.3% and also a bit better than expectations for 0.3%. However, the improvement came in state and local government workers, who saw a 1.0% rise compared with 0.8% in Q1; private industry workers' compensation had a second consecutive record-small 0.2% increase. On a year-to-year basis, the total slower more, with a rise of just 1.8% from 2.1% in Q1.

Wage and salary growth also ticked up from 0.3% in Q1 to 0.4% in Q2. As with total compensation, the "gain" occurred among state and local governments, which went from 0.7% to 1.0%. Private sector workers got a slim 0.2% raise, the same as the quarter before.

These gains for state and local governments are interesting. Both major categories had a marked acceleration in wages. Public administration went from 0.8% in Q1 to 1.2% in Q2, and education and health services from 0.5% to 0.9%. The public administration number is the strongest since Q4 2006, while education and health is marginally more than the recent trends. In light of recent budget pressures in that sector, these labor cost increases would seem to be unsustainable.

Total benefit costs for all civilian workers slowed to a 0.3% increase in Q2 from 0.5% in Q1. This produced a 1.8% year-to-year increase; it is the lowest since mid-1997, but not worse than that period. The associated non-published information on health benefit costs showed a 4.4% rise in the latest 12 months, about in line with the trends of the last two or three years.

The employment cost index figures are available in Haver's USECON database.

ECI - Private Industry Workers (%) 2Q '09 1Q '09 4Q '08 2Q Y/Y 2008 2007 2006
Compensation 0.2 0.2 0.5 1.5 2.8 3.1 2.9
  Wages & Salaries 0.2 0.2 0.5 1.5 3.0 3.4  2.9
  Benefit Costs 0.2 0.2 0.4 1.3 2.6 2.4 2.9
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