Employment Cost Index Rises

Wages, not benefits, are driving up costs for employers as the first-quarter employment cost index rose 0.6 percent following gains of 0.5 and 0.6 percent in the prior two quarters. Wages rose 0.7 percent in the first quarter which matches the highest rates of this economic cycle. The gain for benefits, however, is less strong, at 0.5 percent which is 1 tenth lower than the two prior quarters. And year-on-year, benefits are up 1.7 percent vs 2.0 percent for wages. The rise in wage costs in this report, mirrored by actual wage gains in this morning's personal income & spending report, will definitely catch the eye of Federal Reserve policy makers who are counting on wage pressures to build and give a badly needed lift to overall inflation.\

Recent History Of This Indicator:
The importance of the employment cost index to policy makers is hard to exaggerate with its results helping to shape their expectations on wage inflation, one of the most sensitive topics on the economy. This index showed solid gains in both the third and fourth quarters and another is expected for the first quarter. Wage inflation has yet to make its appearance but this report, if it hits expectations and especially high expectations, would heat up the talk.