U.S. Employment Costs Increase From Year Ago by Most Since 2008

(Bloomberg) -- U.S. employment costs accelerated in the second quarter from a year ago by the most in this expansion on faster growth in worker pay and benefits, according to Labor Department data released Tuesday.

Highlights of Employment Cost Index (2Q)
  • Employment cost index rose 2.8% y/y, the most since 3q 2008, after 2.7% gain
  • ECI climbed 0.6% m/m (est. 0.7%) after 0.8% increase
  • Wages and salaries rose 2.8% y/y, also the biggest gain since 3q 2008; benefits costs jumped 2.9% y/y, most since 4q 2011
  • Private-sector wages and salaries advanced 2.9% y/y for a second quarter

Key Takeaways

The latest results indicate employers are offering better compensation packages to workers amid an ongoing shortage of qualified workers. In another sign of broad-based demand for labor, the ECI showed increases in manufacturing, construction and service-related industries.

While labor costs are rising, there are few signs that they'll trigger heightened inflation pressures. Economists expect the Federal Reserve will still raise interest rates gradually this year.

The government’s quarterly read on the ECI -- covering employer- paid taxes such as Social Security and Medicare in addition to the cost of wages and benefits -- offers a comprehensive look at how American workers are being compensated.

Average hourly earnings, a separate monthly measure of private- sector wages that can be influenced by shifts in industry employment and hours worked, have been rising moderately in this expansion relative to the strength of the job market.

Other Details
  • Employment costs for manufacturers rose 2.9 percent from a year ago; construction up 3 percent and private service providers up 2.9 percent
  • Benefit costs in private industry rose 2.8 percent from second quarter of 2017, after increasing 2.5 percent
  • Employers costs for health benefits increased 1.6 percent from a year earlier

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