Softer U.S. Labor Demand Slowed Wage Growth

Growth in U.S. labor costs unexpectedly slowed in the fourth quarter, leading to the smallest annual increase in 4-1/2 years, as softening demand for labor restrained wage gains. 

The Employment Cost Index (ECI), the broadest measure of labor costs, rose 0.7% last quarter after advancing 0.8% in the July-September quarter, the Labor Department’s Bureau of Labor Statistics said on Tuesday. Economists polled by Reuters had forecast the ECI rising 0.8%.

Advertisements

Labor costs increased 3.4% in the 12 months through December, the smallest gain since the second quarter of 2021. They rose 3.5% in the year through September. 

The ECI is viewed by policymakers as one of the better measures of labor market slack and a predictor of core inflation because it adjusts for composition and job-quality changes. 

Advertisements

A lackluster labor market is curbing wage growth. The government reported last week that there were 0.87 job openings for every unemployed person in December compared to 0.89 in November. That ratio has dropped from about 1.08 a year ago. 

Though wage pressures have diminished, import tariffs have raised goods prices, keeping inflation elevated.

Economists expect the Federal Reserve to hold interest rates steady through the first half of the year. The U.S. central bank last month left its benchmark overnight interest rate in the 3.50%-3.75% range.

Wages and salaries, which account for the bulk of labor costs, rose 0.7% last quarter after increasing 0.8% in the July-September quarter. They advanced 3.3% on an annual basis after increasing 3.5% in the 12 months through September. When adjusted for inflation, overall wages rose 0.7% in the 12 months through December after climbing 0.6% in the third quarter.

Advertisements

(Reporting by Lucia Mutikani; Editing by Mark Porter)

Advertisements