Employee compensation growth has slightly cooled again, according to new data released today, suggesting wage growth may have peaked since its record jump in mid-2022.
Labor compensation costs in the U.S. for private sector workers—including pay and benefits—increased 5.1 percent year-over-year from a 4.4 percent increase a year earlier, the U.S. Bureau of Labor Statistics (BLS) reported Jan. 31 in its quarterly Employment Cost Index (ECI). That's slowed from the third quarter index, released in October, which found that wage growth grew 5.2 percent year-over-year, and from 5.5 percent year-over-year growth from the second quarter of 2022.
Overall, compensation costs for civilian workers climbed 1 percent in the third quarter.
The ECI found that wages and salaries for private-sector workers—the pay component—rose 5.1 percent for the 12 months ending in December, up from a 5 percent increase a year earlier. Meanwhile, the cost of benefits in the private sector rose 4.8 percent for the same 12-month period.
Compensation costs for state and local government workers increased 4.8 percent for the 12-month period ending in December 2022, compared with an increase of 2.6 percent in December 2021.
The index, measuring the change over time in labor costs and released quarterly by the agency, comes just ahead of the Federal Reserve announcement on Feb. 1 in which the Fed is expected to raise U.S. interest rates again in an effort to combat high inflation. The Fed watches the Employment Cost Index, as well as the BLS Consumer Price Index, closely as it determines interest rates.
Largely speaking, salaries have jumped up in the last two years, as employees' leveraging power has increased in a hot job market. Rising inflation also contributed to higher compensation for scores of employees, with many employers looking to help ease the sting of soaring inflation with higher pay.
However, wage growth has still largely lagged behind the rate of inflation by a fairly significant amount, offering employees little reprieve. The Consumer Price Index (CPI) for all items rose 6.5 percent for the 12 months ending in December, before seasonal adjustment, the U.S. Bureau of Labor Statistics (BLS) reported Jan. 12.
The value of "real" inflation-adjusted private wages and salaries fell 1.2 percent for the 12 months ending December 2022, and the inflation-adjusted value of employee benefits fell 1.5 percent for the same period, according to the Employment Cost Index report.