Employment Cost Index Rises As Expected

The employment cost index came in on the hot side as expected, up 0.6 percent in the third quarter vs a record soft 0.2 percent in the second quarter. Outside of the second quarter, however, this index has been showing pressure with outsized 0.7 percent gains in the first quarter this year and the second and third quarters of last year that make for an average 0.6 percent pace over the past six quarters.

A look at components shows a strong 0.6 percent gain for wages & salaries in the latest quarter and a sizable 0.5 percent rise in benefits. Year-on-year, the ECI is unchanged at plus 2.0 percent with wages & salaries up 2.1 percent and benefits up 1.8 percent.

The latest quarter is on the high side and though it follows a very weak prior quarter, policy hawks can definitely cite a tangible upward trend in this series consistent with low levels of unemployment that may be forcing employers to raise wages and benefits to attract employees.

Recent History Of This Indicator
The employment cost index is perhaps the single most underrated report on the calendar. It's importance among policy makers, who repeatedly cite its results, is not easily exaggerated. The second-quarter result of only plus 0.2 percent stands as the lowest in the 33-year history of the report, though a strong bounce back of 0.6 percent is expected for the third quarter. An unusually high reading, such as the top end estimate for plus 0.9 percent, could very well point to a December rate hike.