ECI rebounds in Q3 after sales-related occupations weakness in Q2

The employment cost index (ECI) rebounded in Q3, following the weaker-than-expected Q2 reading, when compensation growth was depressed by declines in sales and office jobs categories, in particular the incentive-based portion of pay for those occupations. Q3 data showed a reversal of this move. The ECI rose 0.6% q/q and 1.9 y/y (previous 2.0%) in Q3. Growth in wages and salaries (0.6% q/q) and benefits (0.5% q/q) was solid.

Private sector earnings drove the rebound in compensation growth, while government sector ECI held up its recent solid pace. Compensation in private industry rose 0.6% (0.0% in Q2) and government sector employment costs were up 0.6% q/q (0.6% in Q2). There was a reversal of the temporary weakness in some categories during Q2. Compensation in sales and office rose 0.7% q/q, reversing entirely the 0.7% q/q decline in Q2.

Similarly, the narrower measure of sales-related compensation grew 0.8% from -2.3% previously (Figure 1, division by occupational grouping). According to industry-level data, professional and business services (+1.0% q/q from -1.2% in Q2) and information (0.7% q/q from -3.7% in Q2; rebounded as well. On balance, the Q3 data suggest a return to a solid pace of compensation growth after the temporary slowdown in Q2.

"We believe the Q2 weakness was driven by the fact that sales jobs are typically more dependent on commissions and bonuses and expected it to be short lived. At 1.9% y/y, ECI is consistent with measured, but not spectacular, wage growth and underlines the fact that wage growth so far in the recovery has been muted despite the sustained decline in the unemployment rate", says Barclays.