PYMNTS MonitorEdge May 2024

U.S. Labor Costs Grow as Workers’ Wages Climb

American labor costs rose more than anticipated last quarter, new government data shows.

The Employment Cost Index (ECI), a measure of wages and benefits, climbed 1.2% last quarter after increasing by an unrevised 0.9% during the last three months of 2023, the Bureau of Labor Statistics said Tuesday (April 30).

Wage growth was more pronounced year-over-year, with increases of 4.8% for private industry employees and 4.9% for state and local government workers. The quarterly increase surpassed projections by economists surveyed by both Bloomberg News and Reuters.

“This isn’t going to calm any nerves at the Fed,” Scott Anderson, chief economist at BMO Capital Markets, told CNN.

That report noted that the Federal Reserve is paying close attention to increases in wages, out of concern that advanced growth in compensation may boost inflation.

The ECI follows data released last week by the Bureau of Economic Analysis on personal income expenditures, which showed — as PYMNTS wrote — “that inflation is still very much alive.” 

Inflation in March, that report said, ran at an annualized 2.7% pace, quickening from the 2.5% rate seen in February. Despite this inflation, consumers are still opening their wallet, with personal spending gaining 0.8% month on month. 

“But personal income was up 0.5% during the same period, which means that money has to come from … well, somewhere,” that report said. “The personal saving rate as a percentage of disposable income fell to 3.2%, which is 0.4% lower than the February reading and down by nearly 2% last year.”

PYMNTS Intelligence data from late last year found that — as 2024 approached — more than three-quarters of consumers said they were using a significant percentage of their saved income on a range of different expenses. 

In addition, consumers say they use up 67% of all available savings, on average, with such depletions happening once every four years.

“But we found, too, that among paycheck-to-paycheck consumers, the average recurrence drops to once every 2.5 years,” PYMNTS wrote.

“Inflation’s taken its toll on savings, too — in terms of the real purchasing power of those saved dollars and the ability to ‘plug’ the gap between income and continued spending. The average amount that is readily available in savings real terms has dipped 7% since September 2021.”