ICS Commentary - U.S. Employment Cost Index, Q3 2012

Two BLS reports signal steady, slow strengthening of labor market
Cornell University, ILR School: ICS - US Employment Index Q3 2012
Friday, November 2, 2012

Download the ICS Commentary. (pdf)

The two labor market reports released by the U.S. Bureau of Labor Statistics this week (Employment Cost Index (ECI) on October 31 and Employment Situation on November 2) both signal a steadily strengthening employment picture.

"While the unemployment rate ticked up one tenth of a percent just as analysts predicted, underlying employment fundamentals are moving in the right direction," according to Linda Barrington, Managing Director of Cornell's Institute for Compensation Studies in the ILR School. "The number of people working part-time but wanting full time work declined, as did the number of discouraged workers, and the employment numbers for both August and September were revised upward. And, at the same time, this quarter's Employment Cost Index rose to 2%."

"The labor market works like any market," noted Linda Barrington. "As demand picks up, in this case for employees, prices rise. The uptick in the employment cost index is consistent with gentle strengthening in employers' demand for workers."  

The general pattern across occupational groups and industry is one of convergence towards 2 percent inflation in wage and salary costs over the 12 months ending September 2012.

The two outliers in this convergence pattern are professional and business services, and leisure and hospitality. After a summer blip (these data are not seasonally adjusted), 12-month increases in wage and salary costs in the leisure and hospitality industry have fallen back down to under one percent. "Increases in wage and salary costs below one percent is what these employers were experiencing throughout 2011 and the first quarter of 2012," says Barrington.

The Employment Cost Index (ECI) released October 31 by the U.S. Bureau of Labor Statistics reflects trends in the costs to employers for the wages and benefits they provide to their workers. The ECI is one of the labor market indicators used by the Federal Reserve Board to monitor the effects of fiscal and monetary policies and is released quarterly.

Read full ICS Commentary on Employment Cost Index. (pdf)