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Economy in Brief

U.S. Employment Costs Ease Slightly in Q2
by Sandy Batten  July 31, 2019

The employment cost index (ECI) for civilian workers rose 0.6% q/q in 2019 Q2, down slightly from a 0.7% quarterly rise in Q1. This was the slowest pace of compensation gains since 2017 Q4. The increase was slightly below expectations of a 0.7% q/q rise from the Action Economics Forecast Survey. The Q2 slowdown lowered the y/y growth of total compensation to 2.7% from 2.8% in Q1, the second consecutive quarter in which the y/y rate has eased. Wage and salaries rose 0.7% (2.9% y/y), the same quarterly increase as in Q1 while benefits for civilian workers slowed to a 0.5% q/q gain (2.3% y/y) in Q2 after a 0.7% q/q rise in Q1. Civilian workers include those in private industry and in state and local governments, but not in the federal government.

Total compensation gains in private industry slowed in Q2, rising 0.5% q/q (2.6% y/y) after quarterly increases of 0.7% in each of the previous two quarters. This was the slowest pace of quarterly advance since 2017 Q4. The 2.6% y/y increase was also the slowest annual pace since 2017 Q4 and down from a recent high of 3.0% in 2018 Q4. Compensation growth slowed in both goods-producing and service-producing industries in Q2. Goods-producing compensation rose 0.7% q/q, down from a 0.9% q/q gain in Q1. The slowdown was led by manufacturing (0.6% q/q in Q2 vs 0.9% q/q in Q1). The rise in service-producing compensation was unchanged at 0.6% q/q in Q2. About half of the service-producing subsectors experience a pickup in the pace of compensation gains in Q2 with half experiencing decline. Of note, compensation growth in the information sector declined (-1.0% q/q vs +0.8%) and financial activities compensation experienced a sharp slowdown (0.2% q/q vs 0.9%). In contrast, professional and business services compensation jumped up 0.9% q/q in Q2 from a modest 0.3% gain in Q1.

Wage and salary gains within private industry slowed to 0.6% q/q in Q2 from a 0.7% q/q rise in Q1, with the y/y pace of advance unchanged at 3.0%. The pace of increase in both goods-producing and service-production wages slowed in Q2--to 0.7% q/q from 0.8% in goods and to 0.6% q/q from 0.7% in services. In the goods sector, manufacturing wage gains slowed to 0.7% q/q from 0.9% in Q1 while construction wage gains picked up to 0.9% q/q from 0.7%. In the services sector, wage gains slowed markedly in transportation (0.5% q/q vs 1.3%), information (0.5% q/q vs 1.0%) and finance (-0.1% q/q vs 1.0%).

Private industry benefits slowed to 0.4% q/q in Q2 from 0.5% q/q in Q1 with the rate of y/y advance slowing markedly to 1.8% from 2.4%. This is the slowest pace of annual advance since 2016 Q4. The rise in benefits in the goods-producing sector slowed to 0.6% q/q in Q2 from 0.9% in Q1 while the advance of benefits in the service-producing sector was unchanged at 0.4% q/q.

The employment cost index figures are available in Haver's USECON database. Consensus estimates from the Action Economics survey are in Haver's AS1REPNA database.

Civilian Workers (% chg) Q2'19 Q1'19 Q4'18 Q2'19 Y/Y 2018 2017 2016
Compensation 0.6 0.7 0.7 2.7 2.8 2.5 2.2
 Wages & Salaries 0.7 0.7 0.7 2.9 2.9 2.5 2.3
 Benefit Costs 0.5 0.7 0.7 2.3 2.7 2.4 2.0
Private Industry Workers (% chg)    
Compensation 0.5 0.7 0.7 2.6 2.9 2.5 2.1
 Wages & Salaries 0.6 0.7 0.7 3.0 3.0 2.6 2.4
 Benefit Costs 0.4 0.5 0.5 1.8 2.6 2.2 1.6
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