U.S. labor costs rose more than market estimates in the first quarter because of increased wages and benefits, highlighting that inflation pressures have surged to start the year.
Real (inflation-adjusted) employment costs inched 0.1 percent higher in the three-month span.
In the first quarter, benefits climbed by 1.1 percent, up from 0.7 percent. Wages also rose by 1.1 percent, unchanged from the upwardly revised 1.1 percent.
Within the BLS report, public sector earning gains outpaced those for private industry employees.
State and local government compensation jumped by 1.3 percent, with wages and salaries surging by 1.4 percent and benefits increasing by 1.2 percent.
On a year-over-year basis, labor costs changed a little at 4.8 percent.
By comparison, private sector compensation rose to 1.1 percent as wages and salaries increased 1.1 percent and benefits edged up 1 percent.
Compensation for private industry workers slowed to 4.1 percent year-over-year.
Subsequent measurements of labor costs will be published on May 2, when the BLS reports on first-quarter unit labor costs. Early estimates suggest that they rose 3.2 percent from January to March.
Other labor metrics have highlighted how wage pressures have also been sticky and stubborn.
Fed officials have insisted that wages are not contributing to inflation.
The ECI was the final inflation report heading into the May Federal Open Market Committee meeting. The Fed is expected to leave interest rates unchanged between 5.25 percent and 5.50 percent and signal a delay in rate cuts amid elevated inflation trends.
Market Reaction
The labor data spooked the financial markets, as the leading U.S. stock indexes were down by as much as 1.2 percent in intraday trading.U.S. Treasury yields were mostly up across the board, with the benchmark 10-year yield topping 4.66 percent. The two-year yield firmed above 5.01 percent, while the 30-year bond rose to 4.78 percent.
A Look at the Labor Market
The April jobs report will be published on May 3.Market watchers project that the U.S. economy created 243,000 jobs and that the unemployment rate will be unchanged at 3.8 percent.
However, while more than 8 million jobs remain unfilled in the labor market, more people are becoming less confident about the employment arena.
Overall, the CCI fell for the third consecutive month in April and retreated to its lowest level in nearly two years.
“Confidence retreated further in April, reaching its lowest level since July 2022 as consumers became less positive about the current labor market situation, and more concerned about future business conditions, job availability, and income,” Dana M. Peterson, chief economist at The Conference Board, said in the report.
“Despite April’s dip in the overall index, since mid-2022, optimism about the present situation continues to more than offset concerns about the future.”
The mean perceived probability of losing a job in the next 12 months rose by 1.2 percentage points to 15.7 percent, the highest reading since September 2020 and above pre-crisis levels. The mean perceived probability of locating a job slumped to a three-year low of 51.2 percent.
The monthly report, produced in partnership with Public Square, found that small business owners are tightening their belts and refraining from making new hires. The respondents noted that they would prefer to be “under-staffed” than “poorly staffed” in the current labor market.
“This year could be the most difficult labor market of our generation,” RedBalloon CEO Andrew Crapuchettes said in a statement. “US employers are facing a perfect storm of challenges that threaten to stifle economic growth and American competitiveness in the global marketplace.”
