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Economy in Brief

U.S. Employment Cost Index Increase Stable During 3Q
by Tom Moeller October 31, 2008

The employment cost index for private industry workers increased by 0.6% last quarter. It was stable with 2Q and that was the weakest rate of gain since 1Q 2006. It also fell short of Consensus expectations for a 0.7% rise. The rise held roughly steady with the 3.0% y/y growth in compensation during 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 again dipped slightly, last quarter to 0.6% versus 0.7% to 0.8% increases during the prior four quarters. Wages account for roughly 70% of the compensation index. Wages in the services industries grew 0.6% and the y/y gain of 2.8% was the slowest since 2006, down from 4.6% growth back in 2000. Wages in the goods producing industries rose 0.4% (2.7% y/y) and that y/y growth compares to a recent peak of 4.5% in 2004.

The rise in benefit costs picked up slightly to 0.6% but the 2.4% year-to-year rise was near the slowest since 1999. In the goods producing sector benefits ticked up 0.1% (2.2% y/y) and in services they rose 0.6% (2.5% y/y), the same as during the prior two quarters.

Health benefit costs rose 3.9% y/y and that was the slowest rate of growth since 1999.

ECI - Private Industry Workers (%) 3Q '08 2Q '08 1Q '08 3Q Y/Y 2007 2006 2005
Compensation 0.6 0.6 0.8 2.8 3.1 2.9 3.1
  Wages & Salaries 0.6 0.7 0.8 2.9 3.4 2.9 2.5
  Benefit Costs 0.6 0.5 0.6 2.4 2.4 2.9 4.6
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