Weak Growth in Wages and Employment Costs

You hear it in the press and on the news almost daily: wages are stagnant and need to go up. Well, the latest reports on personal income and spending, and the report on the Employment Cost Index, are showing two increases. Unfortunately, those increases are far from robust, considering that unemployment is nearly down to 5% in America. The September reading for personal income and spending was less robust than the third quarter’s Employment Cost Index.

Personal income was up 0.1% in the month of September, just shy of the 0.2% projected by Bloomberg. Consumer spending was up 0.1%, versus a 0.2% gain expected by Bloomberg. The PCE price index was lower than expected, with a 0.1% gain, and was flat on a year-over-year basis with a 1.3% reading.

The Employment Cost Index was up 0.6% in the third quarter of 2015. That matched the Bloomberg consensus. What matters here is that gain in the index was a mere 0.2% in the second quarter of this year and was up by 0.7% in the first quarter.

Wages and salaries were up by 0.6%, and the cost of benefits was up by 0.5% in the third quarter. On a year-over-year basis, the ECO is up 2.0%. Of that 2% gain, the wages and salaries component was up by 2.1% and the benefits component was up 1.8%.

The Federal Reserve is hoping for inflation of 2.0% to 2.5%. So far, evidence of anything close to that level remains more than elusive. Now you are seeing more and more evidence why there is only one Federal Reserve president, of the 10 FOMC members, who is voting to raise interest rates.

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