U.S. employment cost index rises in Q4 2018, wage inflation pace likely to pick up gradually

The U.S. employment cost index rose on a quarterly basis in the fourth quarter. The index was up 0.7 percent, as compared with 0.8 percent in the prior quarter and slightly below consensus expectations of a rise of 0.8 percent. The wages and salaries component rose 0.6 percent quarterly, while benefits reportedly slightly stronger growth of 0.7 percent.

The employment cost index was a bit stronger in the public sector than for private industries; however, it is in line with a strong and gradual rise in employment costs for both sectors. The year-on-year rate for ECI came in at 2.9 percent, the highest reading since the third quarter of 2018.

The ECI measure has been rising steadily since early 2016, but the trend continues to be modest compared with its pre-crisis history – especially in light of how fast the jobless rate has fallen and the continued rise in employment.

“In our view the pace of growth in wage inflation should continue to pick up gradually as the unemployment rate falls further and the slack in labor markets diminishes”, said Barclays in a research.

The historical relationship between the jobless rate and wage growth appears to have softened a bit in this business cycle, leading to anticipate measured incremental rebounds in wage pressures even as the jobless rate is expected to fall further below 4 percent, added Barclays.

At 15:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at 2.04354 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex