Employment Cost Index Lower Than Expected

Employers are getting a break as benefit costs continue to slow, helping to hold down the fourth-quarter employment cost index to a lower-than-expected 0.5 percent quarter-to-quarter gain. Benefit costs rose only 0.4 percent in the quarter which is the second lowest showing going back to third-quarter 2011. Year-on-year, total costs rose 2.2 percent, down 1 tenth from the third quarter, with benefit costs down 2 tenths to 2.1 percent.

But the bulk of costs that employers pay, about 70 percent, are wages & salaries where the fourth-quarter gain is sizable at 0.5 percent. This year-on-year rate is at 2.3 percent for, however, a 1 tenth decline.

Employers aren't getting as squeezed by benefits as they had in 2014 when related costs were approaching 3 percent. And though wages & salaries are up, there's no indication that an inflationary flashpoint is at hand. Today's report is not likely to heat up the inflation discussion at this week's FOMC meeting.

Recent History Of This Indicator:
The employment cost index has been showing pressure, rising 0.6 percent in each of the prior three quarters with forecasters seeing yet another 0.6 percent rise in the fourth quarter. The year-on-year rate has been moving higher, at plus 2.3 percent the last two reports. The two components -- wages & salaries and benefits -- have been showing similar levels of pressure. Putting aside prospects of job expansion under the new administration, the risk exists that tight conditions in the labor market are already raising employer costs.