US Labor Costs Rise in 1st Quarter; Another Problem in Inflation Fight

A hiring sign at a mall in Marietta, Ga., on Feb. 22, 2024. Madalina Vasiliu/The Epoch Times

U.S. labor costs rose more than market estimates in the first quarter because of increased wages and benefits, highlighting that inflation pressures have surged to start the year.

The Employment Cost Index (ECI), a broad gauge of labor costs closely monitored by the Federal Reserve, advanced by 1.2 percent in the first three months of 2024, according to the Bureau of Labor Statistics (BLS). This is up by 0.9 percent from the fourth quarter and higher than the consensus estimate of 1 percent.

Real (inflation-adjusted) employment costs inched 0.1 percent higher in the three-month span.

In the first quarter, benefits climbed by 1.1 percent, up from 0.7 percent. Wages also rose by 1.1 percent, unchanged from the upwardly revised 1.1 percent.

Within the BLS report, public sector earning gains outpaced those for private industry employees.

State and local government compensation jumped by 1.3 percent, with wages and salaries surging by 1.4 percent and benefits increasing by 1.2 percent.

On a year-over-year basis, labor costs changed a little at 4.8 percent.

By comparison, private sector compensation rose to 1.1 percent as wages and salaries increased 1.1 percent and benefits edged up 1 percent.

Compensation for private industry workers slowed to 4.1 percent year-over-year.

Subsequent measurements of labor costs will be published on May 2, when the BLS reports on first-quarter unit labor costs. Early estimates suggest that they rose 3.2 percent from January to March.

Other labor metrics have highlighted how wage pressures have also been sticky and stubborn.

The New York Fed’s wage inflation tracker is stuck at about 5 percent. The Atlanta Fed’s alternative three-month moving average of median wage growth is above 4 percent.

Fed officials have insisted that wages are not contributing to inflation.

A cyclist passes the Federal Reserve building in Washington on Aug. 22, 2018. Chris Wattie/Reuters

“Our target is not wages. It is really inflation,” Fed Chair Jerome Powell told reporters at last month’s post-meeting press conference. “Wage increases have been quite strong, but they’re gradually coming down to levels that are more sustainable over time.”

The ECI was the final inflation report heading into the May Federal Open Market Committee meeting. The Fed is expected to leave interest rates unchanged between 5.25 percent and 5.50 percent and signal a delay in rate cuts amid elevated inflation trends.

As inflation trends in the wrong direction, more monetary policymakers have expressed little urgency to cut rates. The futures market does not anticipate the first pivot on the policy rate until the year’s end.

Market Reaction

The labor data spooked the financial markets, as the leading U.S. stock indexes were down by as much as 1.2 percent in intraday trading.

U.S. Treasury yields were mostly up across the board, with the benchmark 10-year yield topping 4.66 percent. The two-year yield firmed above 5.01 percent, while the 30-year bond rose to 4.78 percent.

The U.S. Dollar Index, a gauge of the greenback against a basket of currencies, rocketed above the 106 mark.

A Look at the Labor Market

The April jobs report will be published on May 3.

Market watchers project that the U.S. economy created 243,000 jobs and that the unemployment rate will be unchanged at 3.8 percent.

However, while more than 8 million jobs remain unfilled in the labor market, more people are becoming less confident about the employment arena.

According to The Conference Board’s April Consumer Confidence Index (CCI), consumers say the current employment situation has weakened, with more reporting that “jobs are hard to get.”

Overall, the CCI fell for the third consecutive month in April and retreated to its lowest level in nearly two years.

“Confidence retreated further in April, reaching its lowest level since July 2022 as consumers became less positive about the current labor market situation, and more concerned about future business conditions, job availability, and income,” Dana M. Peterson, chief economist at The Conference Board, said in the report.

“Despite April’s dip in the overall index, since mid-2022, optimism about the present situation continues to more than offset concerns about the future.”

The New York Fed’s latest Survey of Consumer Expectations found that the public has expressed concerns about finding and retaining employment.

The mean perceived probability of losing a job in the next 12 months rose by 1.2 percentage points to 15.7 percent, the highest reading since September 2020 and above pre-crisis levels. The mean perceived probability of locating a job slumped to a three-year low of 51.2 percent.

Consumers’ concerns about the labor market might be warranted based on what employers are saying, according to the results in RedBalloon’s latest Freedom Economy Index.

The monthly report, produced in partnership with Public Square, found that small business owners are tightening their belts and refraining from making new hires. The respondents noted that they would prefer to be “under-staffed” than “poorly staffed” in the current labor market.

“This year could be the most difficult labor market of our generation,” RedBalloon CEO Andrew Crapuchettes said in a statement. “US employers are facing a perfect storm of challenges that threaten to stifle economic growth and American competitiveness in the global marketplace.”