Wages Boost US Labour Costs

• U.S. labour costs increased solidly in the third quarter amid strong wage growth while house price inflation accelerated in August, the latest signs that the Federal Reserve could keep interest rates high for some time. The reports on Tuesday pose a threat to efforts by the U.S. central bank to bring inflation to its 2% target.
• The Employment Cost Index (ECI), the broadest measure of labour costs, rose 1.1% last quarter after increasing 1.0% in the April-June period, the Labour Department's Bureau of Labour Statistics reported. Economists polled by Reuters had forecast the ECI would rise 1.0%.
• Labour costs increased 4.3% on a year-on-year basis, the smallest gain since the fourth quarter of 2021, after advancing by 4.5% in the second quarter. Growth in annual compensation is gradually slowing after peaking at 5.1% last year, in line with some easing in labour market conditions. It, however, remains well above the pre-pandemic pace.
• The rise in compensation helps to explain the surge in consumer spending last quarter, which contributed to the fastest economic growth rate in nearly two years.
• The ECI is widely viewed by policymakers and economists as one of the better measures of labour market slack and a predictor of core inflation because it adjusts for composition and job-quality changes. Since March 2022, the Fed has raised its policy rate by 525 basis points to the current 5.25%-5.50% range.
• Wages increased 1.2% in the third quarter after climbing 1.0% in the prior three months. Year-on-year, it was up 4.6% after advancing by the same margin in the second quarter. Strong wage growth is being driven by worker shortages that persist in some service industries.
• September's job openings data, scheduled to be released today, will shed light on the state of demand for labour.

(Source: Reuters)