Americans’ paychecks aren’t going as far any more: Workers’ wages and benefits rose last quarter at the slowest pace in more than four years, new data showed Wednesday.
The latest Employment Cost Index, a closely watched measure of labor costs, showed that compensation growth rose 0.8% in the third quarter, a deceleration from the 0.9% gain seen the quarter before, the Bureau of Labor Statistics reported Wednesday. Year-over-year compensation gains slowed to 3.5%, the lowest since the second quarter of 2021.
When factoring in inflation, the gains are paltry: On an annual basis, wages and benefits are up just 0.5%, down from 0.9% during the second quarter. This time last year, inflation-adjusted compensation was growing at a 1.4% pace annually, BLS data shows.
Economists expected that quarterly compensation growth would be unchanged at 0.9% and tick up annually to 3.7%, according to FactSet consensus estimates.
The Federal Reserve favors the ECI over other wage gauges because it provides a more comprehensive measurement by including not just wages but also the costs of benefits provided to workers. The index also implements controls that allow for the measuring of wage costs for the same jobs over time.
Worker compensation spiked during the pandemic recovery as pent-up consumer demand outstripped businesses’ ability to hire workers.
Wage gains are now closer to the range the Fed wants to see: Central bank officials have indicated that a pace of 3.5% is more consistent with their target of 2% inflation.