Important labor cost index rises 0.6% in Q3

October 30, 2015 08:47 AM

U.S. labor costs accelerated in the third quarter as the jobs market continued to tighten, but remained well below levels that would push inflation closer to the Federal Reserve's 2 % target.

The Employment Cost Index, the broadest measure of labor costs, increased 0.6 % after an unrevised 0.2 % gain in the second quarter, the Labor Department said on Friday.

The increase was in line with expectations. Second-quarter labor costs were restrained by a reduction in commissions and bonuses earned by workers.

There is hope that a significant decline in labor market slack will lead to upward pressure on wages. Wage growth has been frustratingly slow even though the current unemployment rate of 5.1 % is not far from the 4.9 % level that many Fed officials consider consistent with full employment.

The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack. It is also considered a better predictor of core inflation.

Wages and salaries, which account for 70 % of employment costs, rose 0.6 % in the third quarter. They increased 0.2 % in the second quarter.

Private sector wages and salaries advanced 0.7 % after rising 0.2 % in the prior quarter.

In the 12 months through September, labor costs rose 2.0 %, still below the 3 % threshold that economists say is needed to bring inflation closer to the Fed's target.

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