US employment costs rise slightly more quickly than expected in Q1

Employment costs for civilian workers in the US picked up a little at the start of 2023.

According to the Department of Labor, the Employment Cost Index rose at a quarterly pace of 1.2% (consensus: 1.1%) during the first three months of the year.

That was on top of a one tenth of a percentage point upwards revision to the prior quarter's reading to 1.1%.

Wages and salaries were ahead by 1.2% in the private sector and benefits by 1.1%.

In the public sector meanwhile, employment costs were up by 1.1% with wage growth slowing from 1.1% to 0.9%, but benefits increased by 1.5%, which was up from the 1.0% rate of growth recorded during the fourth quarter of 2022.

Commenting on the latest ECI data, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the key number in Friday's report was the private sector wages ex-incentive pay, which was up by 1.3% after Pantheon's seasonal adjustment or by 5.2% in annualised term.

The latter compared to the 4.3% annualised gain in the fourth quarter of 2022, a "clear step up" that broke the slowing trend seen across 2022.

"This is impossible to square with the hourly earnings numbers and the downshift in survey measures of compensation trends, though the ECI is mix-adjusted and ought to capture the trend more accurately," he added.

"For now, then, this is disappointing and a bit of a mystery, but we fully expect wage growth to slow markedly over the remainder of this year as payroll growth rolls over and unemployment rises."