WASHINGTON — Total compensation paid to US workers grew at a faster pace than expected last quarter, pointing to ongoing momentum in the job market.
The Employment Cost Index rose 1.1% in the third quarter, the Labor Department reported Tuesday. That’s a faster pace than the 1% gain registered in the second quarter.
Wage growth advanced at a robust 1.2% pace in the July-through-September period, accelerating from the prior three-month period’s 1% rise, contributing to a pickup in overall compensation growth. Benefits growth, meanwhile, slowed during the same period.
From a year earlier, wages and benefits grew 4.3% in the third quarter, a slower pace than the second quarter’s 4.5% annual gain and the first quarter’s 5% rate.
The figures underscore the resilience of the US job market amid the highest interest rates in 22 years — a potential headache for the Federal Reserve, which is tasked with managing inflation. Wage growth could be contributing to some upward pressure on prices, but economists debate how much worker pay gains are ultimately fueling inflation.
An analysis from jobs site ZipRecruiter showed that consumer prices rose faster than wages from the first quarter of 2020 through this year’s second quarter: Consumer prices grew 17.2%, versus compensation growth of 13.6%.
“The ECI data suggests that for the most part, wage growth has been slower than inflation, so it’s the tail wagging the dog, not the other way around with inflation that’s pulling up wages, not wages that are driving inflation,” Julia Pollak, ZipRecruiter chief economist, told CNN.
Pay gains also vary by industry. The ZipRecruiter analysis also showed that compensation growth for production workers advanced 20.2%, outpacing consumer prices, while for service workers, pay growth was 14.1%.
“That may be one reason why so many Americans are feeling gloomy about the economy, even though many of the top-line statistics are very rosy,” Pollak said. “That’s because when you look at wage growth for a fixed group of people, it has been slower than the increase in the overall average.”
Strong labor market
Employers added 336,000 jobs in September, the strongest gain since January, while the unemployment rate held at a low 3.8% that month. New applications for unemployment benefits remain at historically low levels and job openings continue to dwarfthe number of unemployed people actively seeking work by millions. Government figures on job gains, openings, and the unemployment rate are due later this week.
But economists widely expect growth, including hiring, to slow in the months ahead. Higher borrowing costs, tougher lending standards from banks, and the resumption of student loan repayments are all expected to help cool the economy. Furthermore, a possible government shutdown next month could sour Americans’ moods.
The Fed is also mulling one more rate hike this year, but investors are overwhelmingly betting that the central bank will hold interest rates steady at a 22-year high during its two-day policy meeting, which started on Tuesday. Investors’ bets that the Fed will pause again in December are much lower, at around 68%, according to the CME FedWatch Tool.
The expectation that the economy will weaken — after it expanded at a blistering 4.9% annualized rate in the third quarter — is giving the Fed enough room to hold rates steady this week.
