The Employment Cost Index for Q4 rose 1% q/o/q and that was one tenth below the estimate. The private sector component is most important here and the q/o/q rise in wages and salaries was 1% vs 1.2% in Q3, 1.6% in Q2 and 1.3% in Q1. It finished 2021 at 1.1%. Versus last year, private sector wages and salaries were higher by 5.1%, the same pace seen in September. As for other benefits, like healthcare, compensation went up .7% q/o/q vs .8% in Q3, 1.3% in Q2 and 1.9% in Q1. It was .9% in Q4 2021. There were up 4.8% y/o/y.
For perspective, the y/o/y private sector rise in total compensation of 5.1% is off the peak of 5.5% in Q2 but is almost double the pace of the 19 years (as far back as the data goes) leading into Covid of 2.7%. That’s a clear change in the pace of labor costs. The question though is where does it go from here and it’s a tricky one to answer. That is because we have a two lane labor market highway, one where employers need employees on premises to do their jobs and the other where they can work from anywhere. The former has the most leverage in decades while the former are more vulnerable here in a slowing economy. I don’t know the net result in terms of aggregate wage growth.
As for the Fed, as they only have one or two more hikes left anyway, this data matters from here more so for how long they can hold out with rates at current levels in the face of a slowing economy and eventual rise in the unemployment rate. Treasury yields fell a touch further after the number.
Private Sector Compensation y/o/y in Q4
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.