Employers Payroll Costs Rise In Third Quarter

Wednesday's FOMC statement downplayed the risk of deflation saying inflation pressures are likely to rise, a view justified by the third-quarter employment cost index which jumped 0.7 percent for the second straight quarter. These are the two largest increases of the recovery, going back to 2008.

The wages & salaries component shows the most pressure in the report, up 0.8 percent in the quarter vs an already large 0.6 percent gain in the second quarter. The latest gain is the largest since 2008. The benefits component rose 0.6 percent, down from a 1.0 percent spike in the second quarter.

Year-on-year rates also show pressure confirming that trends are pointing higher. Overall, year-on-year compensation was up 2.2 percent vs 2.0 percent and 1.9 percent in the prior two quarters. Wages & salaries rose to a year-on-year plus 2.1 with benefits up 2.4 percent.

Rising employment costs are the final nails in the coffin as far as inflation pressures and policy makers are concerned. These rates are still modest compared to prior recoveries but are definitely moving higher.

Recent History Of This Indicator:
The employment cost index surged 0.7 percent in the second quarter versus, however, a record low 0.3 percent in the first quarter. Pressure was evident in both the wages & salaries component, which jumped 0.6 percent in the quarter, and the benefits component which surged 1.0 percent. Year-on-year rates all showed significant acceleration and were near or above the 2.0 percent policy threshold. The total ECI is up 2.0 percent year-on-year vs 1.8 percent in the first quarter with wages & salaries at 1.8 percent, vs the first quarter's 1.6 percent, and benefits at 2.5 percent vs 2.1 percent.