The American worker’s paycheck isn’t growing by much.
The employment cost index (ECI) increased by 0.6% in Q4, which was in line with the 0.6% expected by economists.
However, this was a slightly smaller increase than last quarter, when the ECI increased by 0.7%.
As a result, the latest data suggests that wages and salaries rose at a slower pace in the fourth quarter than in the third quarter.
And that’s just another indication that workers haven’t been too successful in getting pay increases even while the labour market is improving (which we previously saw with the surprising fall in average hourly earnings in the December jobs report.)
ECI is a broader measure that includes other forms of compensation besides hourly pay (for example: commissions), as well as benefit costs (which are more than 30% of labour costs).
“There’s still a lot of slack in the labour market, mostly because of the low participation rate and recent drop in the labour force,” Nariman Behravesh, chief economist at IHS Inc. in Lexington, Massachusetts, told Bloomberg before the report. That is “continuing to put some downward pressure on wages — not that they’re falling, but they’re not going anywhere, either.”
In other words, a weaker ECI number reinforces the idea that wage gains remain muted.