Employment Cost Index Rises, With Some Caveats

Is the Federal Reserve finally getting to see more of the wage pressure it has hoped for? Maybe they don’t want serious wage pressures, but the Fed has to hope for inflation anywhere it can find it right now. Otherwise it is pretty hard to justify rate hikes while Europe and now Japan have embarked on negative rates and when emerging markets are still slowing.

The Bureau of Labor Statistics (BLS) has released its Employment Cost Index for the fourth quarter of 2015, showing that compensation costs for civilian workers rose by a seasonally adjusted 0.6%. Wages and salaries make up about 70% of total compensation costs, and this portion rose by 0.6% as well. The rest comes from benefits, and that reading was up by 0.7%.

Friday’s report may have a bit of good news for the hawks, but the annual readings are still a bit weak. The BLS Said:

Compensation costs for private industry workers increased 1.9 percent over the year, slowing from the December 2014 increase of 2.3 percent. Wages and salaries increased 2.1 percent for the current 12- month period. In December 2014, the increase was 2.2 percent.

Insurance costs were up: employer costs for health benefits rose by 3.0% over the year. In December 2014, the increase was 2.4%.
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Investors and economists know that this report never really moves the markets. What it does do is signal where the real wage cost pressures are in the economy. It turns out that the costs of keeping the employees there (the benefits) are up a tad more on a percentage basis than the actual wages and salaries.