Q3 Employment Cost Index
Updated 19-Nov-09 19:26 ET
Highlights
- For the second consecutive quarter, employment costs rose only 0.4% in Q3. While the rate of the increase was expected, it still remains the lowest change in prices in the history of the index.
- Wages and salaries, which make up approximately 70% of compensation, also maintained its 0.4% growth rate in Q3. Benefits rose 0.4% after increasing 0.3% in Q2.
- Year-over-year employment costs increases slowed for the fifth consecutive quarter and only increased 1.5%. Last year, at this time, employment costs rose 2.9%.
- Wages and benefit increases have also declined for the fifth consecutive quarter and now stand at 1.5% and 1.6%, respectively.
Key Factors
- Employment costs are a double-edged sword. One one side, firms can take advantage of lower employment costs by receiving higher profit margins. However, lower employment compensation growth prevents the consumer from paying more for goods and increases deflationary risks.
- Employment costs will be constrained in the future as high unemployment forces workers to compete for jobs. This will push down potential wages.
Big Picture
- Employment costs are the major component of business costs. The trend in these data therefore have important implications for cost-push inflationary pressures and for profit margins. In recent quarters, the trend has been relatively steady to lower. The year-over-year total increase in the ECI is now below 2.0%. Weak overall demand in the economy should keep the ECI cost index on the current trend. At 1.5% this does not represent much inflationary pressure.
| Category |
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
| Quarterly Changes |
|
|
|
|
|
| Total ECI |
0.4% |
0.4% |
0.3% |
0.6% |
0.6% |
| Wages and Salaries |
0.4% |
0.4% |
0.3% |
0.5% |
0.7% |
| Benefits |
0.4% |
0.3% |
0.5% |
0.5% |
0.6% |
| Year/Year Changes |
|
|
|
|
|
| Total ECI |
1.5% |
1.8% |
2.1% |
2.6% |
2.9% |
| Wages and Salaries |
1.5% |
1.8% |
2.2% |
2.7% |
3.1% |
| Benefits |
1.6% |
1.8% |
2.0% |
2.2% |
2.6% |
