- Pay is losing ground to prices. The employment cost index, which tracks wages and benefits, rose 3.4% in the 12 months through September but fell 0.4% once adjusted for inflation, according to Bureau of Labor Statistics figures out Friday. It was the second straight quarter that labor costs grew more slowly than inflation.
- Wage growth is cooling. Growth in wages and salaries for civilian workers edged down to 0.7% in the three months through September and 3.1% from a year earlier, the lowest since 2021. Adjusted for inflation, wages fell 0.6% over the 12 months.
- The slowdown is broad. Wage growth slowed in sectors including construction and leisure and hospitality, and annual pay growth in service occupations dipped to the lowest since 2016. On a quarterly basis, the overall index rose 0.8%.
- Benefits are the exception. Private-sector employer costs for health benefits picked up to 6.4% in the year through September, matching the highest since 2005, according to Bloomberg.
What Happened?
The BLS released its third-quarter employment cost index on Friday, showing labor costs rose 3.4% from a year earlier and 0.8% from the prior quarter, but fell 0.4% after inflation, Bloomberg reported. The labor market has been broadly stable this year, with few layoffs alongside subdued hiring, but many workers have struggled to keep up with rising prices. “Job gains have kept pace with the workforce, and the unemployment rate has changed little. But inflation remains elevated,” Fed Chair Kevin Warsh said on Wednesday after the Fed kept rates unchanged.
Why It Matters?
The report shows inflation is being driven by something other than a wage spiral. With pay growth at its slowest since 2021 and falling in real terms, rising prices are squeezing household budgets rather than being fueled by labor costs. For the Fed, that is a mixed signal: cooling wages ease fears of a wage-price loop, but falling real pay could eventually weigh on consumer spending. For companies, the jump in health-benefit costs to a 6.4% pace adds pressure on margins even as wage growth slows.
What’s Next?
Next week, the BLS will release its October jobs report, offering a fresh look at hiring and wages across the US. Investors will watch whether average hourly earnings confirm the slowdown in pay growth and whether hiring stays subdued. A continued squeeze on real wages would be a key risk for spending heading into the holiday season.
Affected Tickers and Coins: SPY, XLY, TLT, TIP
Source: Bloomberg
