US Q1 compensation growth seen having scant impact on Fed policy

The broadest measure of inflationary pressures in the US jobs market jumped by more than forecast last month as benefits exploded.

According to the Department of Labor, in seasonally adjusted terms, the Employment Cost Index increased at a quarter-on-quarter pace of 1.4% (consensus: 1.1%).

Costs grew more quickly in the private sector, where they were up by 1.4%, than in the public sector where they rose 1.1%.

Combined, benefits in the public and private sector increased by 1.8% on quarter and wages and salaries by 1.2%.

In annual terms, total compensation in the US grew by 4.5% in March, versus 4.0% one year ago. Within that, wage growth quickened from 4.5% to 4.7% and benefits growth from 2.8% to 4.1%.

Commenting on the possible implications of the data, Ian Shepherdson, chief economist at Pantheon Macroeconomics, highlighted that with the trend rate for labour productivity seen at around 2-2.5% in annual terms, the Federal Reserve would want to see wage gains slowing to 4-4.5%.

"These data have no immediate policy implications because the Fed has long been set on a 50bp hike in May, but at the margin it makes a second 50bp hike in June more likely.

"After that, all bets are off, and the pace of tightening could easily be slowed by the meltdown in the housing market, now in its early stages, and the coming rapid decline in inflation."