U.S. Employment costs rose at the fastest pace on record in the third quarter as companies across a variety of sectors raised wages against a backdrop of labor shortages.
The employment cost index, a broad gauge of wages and benefits, rose 1.3% from the prior quarter, according to Labor Department data released Friday. The gauge increased 3.7% from a year earlier.
Compensation gains were broad-based across sectors, underscoring how a tight labor market has put pressure on many different types of firms to raise wages. Wages and salaries for civilian workers also rose at a record pace, surging 1.5% in the quarter.
Unlike the average hourly earnings figures in the monthly jobs report, the ECI isn’t impacted by employment shifts across industries and occupations—something that’s been particularly severe amid the pandemic.
U.S. Stock futures remained lower, while the yield on the 10-year Treasury ticked higher and the dollar strengthened.
Wage breakdown by private industry
- Credit intermediation +7.7%
- Finance and insurance +3%
- Leisure and hospitality +2.6%
- Nursing and care facilities +2.1%
- Service-providing industries +1.7%
While millions of Americans remain out of work, businesses are struggling to hire and retain enough workers to stay abreast with resurgent demand. As a result, many companies have increased wages, offered one-time bonuses or bolstered other perks—like flexible schedules—to attract workers.
Wages and salaries at companies rose 1.6% in the quarter, also a record.
Some companies—like Chipotle Mexican Grill and Tesla—have raised prices to help offset increased labor costs, fueling concerns the rapid wage increases could lead to a wage-driven inflationary spiral. However, opponents argue that would require wages to continue to rise at a rapid pace year after year. Rising productivity also helps to absorb those inflationary pressures.
A separate report out Friday showed U.S. Personal spending rose at a steady pace in September, reflecting further growth in outlays for services, while a closely watched price gauge climbed in line with forecasts.
How companies see it
“It does feel like there’s more options for hourly employment and because of that, that’s putting pressure on the labor markets and hiring for the roles that we need.” —Kimberly-Clark Corp. CEO Michael Hsu, Oct. 25 earnings call
“While we are seeing an impact from the rising commodity and labor costs we have also been adjusting pricing, which should help to compensate.” —Tesla Inc. CFO Zachary Kirkhorn, Oct. 20 earnings call
“With a competitive labor market, this is putting some pressure on our labor cost, including higher acquisition and retention costs, which is not yet reflected in our current pricing. We expect to capture this value in future engagements, but it will take time to appear in our margin profile.” —International Business Machines Corp. CFO James Kavanaugh, Oct. 20 earnings call
“We have had to make some wage rate adjustments in some of our factories, distribution centers and fleet drivers to I’d say attract and retain some of our employees.” —Sherwin-Williams Co. CEO John G. Morikis, Oct. 26 earnings call
—With assistance from Kristy Scheuble and Ana Monteiro.
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