Labor Costs On The Increase

Labor costs are accelerating, which hints at pass-through to workers and welcome upward pressure for overall inflation. The employment cost index rose a quarter-to-quarter 0.6 percent in the second quarter, in line with trend and lifting the year-on-year rate by 4 tenths to plus 2.3 percent for the highest rate since the first quarter last year. Of the two components, wages & salaries are showing slightly more pressure, up 0.6 percent in the quarter vs 0.5 percent for benefits. Year-on-year, wages are up 2.5 percent with benefits up 2.0 percent. Higher labor costs may not be a plus for corporate profits but will be seen as a plus by policy makers who are hoping for a little wage inflation to help the economy.

Recent History Of This Indicator:
Strength in the employment cost index would signal to policy makers that wage inflation may finally be appearing. This report did show relative wage gains in the first quarter though pressure was still no more than moderate. Forecasters see a second straight 0.6 percent rise for the second quarter with the year-on-year rate, at only plus 1.9 percent in the first quarter, likely to get a boost from an easy comparison with last year's unusually weak second quarter.