The employment cost index (also known as the ECI) has risen “2.8 percent for the second quarter,” according to CNBC. The ECI tracks movement in the cost of labor, as measured by wages and benefits. This is the fastest rate of growth seen in the United States since the third quarter of 2008. This is good news when one considers that wage growth has been the main factor missing from an otherwise on-paper economic recovery. The ECI has been rising steadily over the past year-and-a-half. The Federal Reserve is meeting this week, and they will likely discuss the rise in worker compensation.
A 10-year high
“Compensation for workers rose to a nearly 10-year high in the second quarter,” according to CNBC, alongside the continuing inflation pressures currently being felt. From April forward, the employment cost index increased 0.6 percent for civilian workers (according to a Bureau of Labor Statistics release from Tuesday). All told, in the past 12 months, the ECI has risen to 2.8 percent in the last 12-month period. In the third quarter of 2008, the ECI rate was at 2.9 percent.
Before now, average hourly wages have “barely [kept] pace with inflation.” For the last little while (approximately a year and a half) the ECI has been rising, rising, rising. Whereas the rate has struggled to stay above 2 percent since 2008, this seems to be changing now. The ECI has risen steadily from 2.2 percent since Donald Trump’s inauguration.
In the past quarter, wages and salaries have risen about .5 percent and 2.8 percent for the past 12-month period. Benefit costs also have seen strong increases with a rise of .9 percent in the past quarter and 2.9 percent in the past 12-month period. “The index draws from a sample of 27,200 observations of some 6,600 private businesses as well as 8,000 observations from 1,400 government offices,” according to CNBC.
The compensation from private industries also has risen. Whereas in June of 2007 the percentage was around 2.4 percent, now it has risen a full .5 percentage points to 2.9 percent. Government compensation, on the other hand, saw a pullback from a 2.6 percent increase for the period of June 2017 to a 2.3 percent increase recorded for this quarter. Within the industry, sales and related jobs rose an incredible 3.5 percent while transportation rose 3.4 percent. Hospital work gained 2.2 percent this quarter.
Nonfarm payrolls report
According to Investopedia, a nonfarm payroll is “any job with the exception of farming positions, self-employment and employment by private households, nonprofit organizations and the military.” The monthly report that is released on these positions is used to gauge economic health. For this coming nonfarm payroll report, economists expect “a gain of 190,000 and a 2.7 percent increase in average hourly earnings,” according to CNBC. A hot week for reports, the Federal Reserve will meet as well to discuss monetary policy, where they expected to keep the interest rate at between 1.75 percent and 2 percent.
Wages have been the last piece of the economy to fall into place in order to be able to say that the economy is strong and healthy and in full recovery from the last downturn. Wage stagnation has persisted despite job growth, and this has been a puzzle as well as a problem. If wages grow to a point where they beat inflation, it is good news for workers and for the economy as a whole.
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