On Tuesday, analysts from ING noted a significant acceleration in US employment costs, particularly in the government sector, which could signal a more hawkish stance from the Federal Reserve. The rise in labor costs comes ahead of the Federal Open Market Committee (FOMC) meeting set for tomorrow.
The employment cost index, a key indicator of labor market inflation pressures, saw a substantial increase in the first quarter of 2024.
The US employment cost index jumped by 1.2% quarter-on-quarter in the first quarter, surpassing the fourth quarter’s 0.9% rise and the 1% increase that had been anticipated. This figure exceeded all individual forecasts in a Bloomberg survey, suggesting stronger inflationary pressures than expected.
The index is a crucial measure for the Federal Reserve when assessing labor costs, which are a significant expense in a service sector-driven economy like that of the United States.
The detailed report showed that the government sector led the increase, with wage and salary growth escalating from 4.7% year-on-year to 5%, while the private sector saw wages and salaries maintain a 4.3% growth rate year-on-year.
Overall compensation continued to grow at 4.1% year-on-year. On a quarter-over-quarter basis, government worker compensation rose by 1.3%, compared to 1.0% in the previous quarter, and private industry compensation increased by 1.1%, up from 0.9%.
Contributing to the heightened private sector labor costs were substantial hikes in state minimum wage levels. Notably, California’s decision to raise the minimum wage for fast food workers to $20/hour will take effect in the second quarter and is expected to have a significant impact.
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The ING analysts suggest that these developments could reinforce the prospect of hawkish messaging from the Fed in its upcoming meeting.
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