U.S. wage growth remains on moderate upward path in Q4, likely to continue accelerating in 2017

The U.S. employment cost index dropped a bit in the fourth quarter and was consistent with the market expectations. The index continues on a moderate upward path. The ECI index came in at 0.5 percent sequentially in the December quarter, as compared with consensus expectations of 0.6 percent. The year-on-year rate dropped a bit from 2.3 percent in the third quarter to 2.2 percent in the fourth quarter.

Wages and salaries growth came in at 0.5 percent sequentially, remaining strong, while the growth rate of benefits decelerated sharply to 0.4 percent. Government sector compensation was also up, rising 0.5 percent. Overall, the fourth quarter data imply a continued strong pace of compensation growth.

Wage growth is likely to continue accelerating in 2017 as the jobless rate is also expected to fall while the labor markets continue to tighten, noted Barclays in a research report. Moreover, a significant fiscal stimulus package is expected this year that might also exert upward pressure on wages, added Barclays.