Despite a tight labor market and an unemployment rate at a 50-year low of 3.5%, wages and benefits for American workers haven’t seen much growth. The employment cost index rose 0.7% in Q4 of 2019 according to a report released by the Bureau of Statistics on Friday, in line with expectations. Annually, the pace of wages and benefits growth slowed to 2.7% from 2.9%.
Key Takeaways
- 2018 saw a post-recession high in wages and benefits growth to 2.9%, which slowed to 2.7% last year.
- Wages rose and salaries rose 2.9% last year, down from 3.1% in 2018
- Benefits rose 2.2% vs. 2.8% in 2018 according to the ECI which is used to measure labor market slack and to predict core inflation.
Wages, which account for 70% of employment costs, rose 0.7% in Q4 2019. Benefits rose 0.5%. Both categories have seen a slower pace of growth over the last 12 months compared to the pace in 2018. The reduction in pay growth is likely to impact household spending, limiting ongoing spending growth. Private sector wages and salaries rose 3.0% annually in December as well as in September. State and local government wages and salaries rose 0.5% in Q4 after rising 1.0% in Q3.
Consumer spending accounts for two-thirds of the US economy, and healthy spending is vital to preserving the ongoing period of economic expansion. At the current pace of growth, the ECI data could point to a drag on 2020 GDP, although a recession is considered unlikely with moderate ongoing growth currently predicted.
Market Reaction
Gold prices have ticked downward in today’s session. Spot gold last traded at $1,583.58/oz, up 0.005% with a high of $1,584.77/oz and a low of $1,571.04/oz. The income growth was described as “fairly stagnant” by ForexLive managing director Adam Button, although it was in line with expectations.
While the income growth failed to impress, more upbeat data was released in the PCE Index report and the report on personal income and spending, all of which point to moderate growth and low inflation pressure as expected. While conditions are not ideal, the general consensus is that the US economy is well-positioned to continue the record-breaking period of expansion which is now in its 11th year.
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