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Economy in Brief

U.S. Employment Costs Jumped Up in Q3
by Sandy Batten  October 29, 2021

• Overall compensation rose 1.3% in Q3, the largest quarterly gain since Q1 2001.

• Wage and salaries jumped up 1.5% q/q, the largest gain since Q1 1984.

• Benefits increased 0.9% q/q.

As the U.S. economy continues to reopen and labor markets recover from the pandemic, employment costs took a large step up in Q3. The employment cost index (ECI) for civilian workers increased 1.3% q/q (3.7% y/y), its largest quarterly gain since Q1 2001. That followed a 0.7% quarterly advance (2.8% y/y) in the second quarter. The Q3 increase was significantly above the 0.9% q/q gain expected by the Action Economics Forecast Survey consensus. The FOMC meets next Tuesday and Wednesday and is widely expected to announce that it will begin to taper the pace of its asset purchases. This report clearly re-enforces that expectation.

The overall increase was driven by meaningful gains in both wages and salaries and benefits. Wage and salaries jumped up 1.5% q/q (4.2% y/y), the largest quarterly increase since Q1 1984, following a 0.9% q/q rise in Q2. Benefits were up 0.9% q/q (2.5% y/y), following a 0.4% q.q increase in Q2.

Private sector compensation rose even more in Q3 than did overall compensation. It was up 1.4% q/q (4.1% y/y), also the largest quarterly gain since Q1 2001, following a 0.8% q/q rise in Q2. Private sector wages and salaries advanced 1.6% in the quarter, the largest gain since Q3 1982, and were up 4.6% from a year ago. In Q2, they had been up 1.0% q/q. Private sector benefits jumped up 1.1% q/q (2.6% y/y) following a modest 0.3% quarterly gain in Q2.

Compensation in goods-producing industries increased 0.9% q/q (3.3% y/y) in Q3, a slowdown from the 1.1% q/q rise in Q2. By contrast, compensation in service-providing industries jumped up 1.3% q/q (3.7% y/y), the largest quarterly gain in this series' short history (dating back to 2003), versus a 0.7% q/q gain in Q2.

The employment cost index measures the change in the cost of labor, free from the influence of employment shifts across occupations and industries. It is provided by the Bureau of Labor Statistics and is available in Haver's USECON database. Consensus estimates from the Action Economics survey are in Haver's AS1REPNA database.

Civilian Workers (% chg) Q3'21 Q2'21 Q1'21 Y/Y 2020 2019 2018
Compensation 1.3 0.7 0.9 3.7 2.6 2.7 2.8
 Wages & Salaries 1.5 0.9 1.0 4.2 2.8 2.9 2.9
 Benefit Costs 0.9 0.4 0.6 2.5 2.2 2.4 2.7
Private Industry Workers (% chg)    
Compensation 1.4 0.8 1.0 4.1 2.6 2.7 2.9
 Wages & Salaries 1.6 1.0 1.1 4.6 2.9 3.0 3.0
 Benefit Costs 1.1 0.3 0.6 2.6 1.9 2.0 2.6
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