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Economy in Brief

U.S. Employment Cost Index Increase Eased in 2Q
by Tom Moeller July 31, 2008

The employment cost index for private industry workers increased by 0.6% last quarter and that was the weakest rate of gain since 1Q 2006. It fell short of Consensus expectations for a 0.7% rise. The rise held roughly steady the y/y growth in compensation at 3.0% which was steady with the gains of the last three years.

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 dipped slightly to 0.7% versus 0.8% increases during the prior four quarters. Wages account for roughly 70% of the compensation index. Wages in the services industries grew a steady 0.7% (3.1% y/y) while wages in the goods producing industries grew 0.6% (3.1% y/y) after the 1.0% pop during 1Q.

The rise in benefit costs slowed further to 0.5%. Year-to-year, the 2.6% rise in benefit costs in the service producing industries was roughly steady with the prior two years but down sharply from 4-6% growth back to 2000. In the goods producing sector benefits rose 0.3% (2.2% y/y).

Health benefit costs rose a somewhat reduced 4.6% y/y.

The Fed's announcement of steps to enhance the effectiveness of its existing liquidity facilities can be found here.

ECI - Private Industry Workers 2Q '08 1Q '08 4Q '07 2Q Y/Y 2007 2006 2005
Compensation 0.6% 0.8% 0.9% 3.0% 3.1% 2.9% 3.1%
  Wages & Salaries 0.7% 0.8% 0.8% 3.1% 3.4% 2.9% 2.5%
  Benefit Costs 0.5% 0.6% 0.8% 2.6% 2.4% 2.9% 4.6%
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