US labor cost growth fell below inflation for the second consecutive quarter, the latest sign that rising prices are squeezing American household budgets.
Data released Friday by the US Bureau of Labor Statistics showed that the Employment Cost Index (ECI), which measures changes in wages and benefits, dropped 0.4% year-on-year on an inflation-adjusted basis in the 12 months through September. Before accounting for price changes, the index rose 3.4%. On a quarterly basis, the gauge rose 0.8%.
The US labor market has been broadly stable this year, with few layoffs and sluggish hiring. But many workers are struggling to keep pace with rising prices.
"Job growth has kept pace with the size of the labor force, and the unemployment rate has changed little. But inflation remains high," Federal Reserve Chair Kevin Warsh said Wednesday after the central bank decided to hold interest rates steady.
Friday's ECI report showed that wage and salary growth for private-sector workers edged down to 0.7% in the three months through September, up 3.1% year-on-year, the lowest since 2021. After adjusting for inflation, wages fell 0.6% in the 12 months through September.
Wage growth slowed broadly across multiple industries, including construction and the leisure and hospitality sector. Annual wage growth in the broader services sector fell to its lowest level since 2016.
Healthcare benefit costs for private-sector employers rose to 6.4% in the year through September, matching the highest level since 2005.
PCE data released Thursday showed that US personal income rose by $54.5 billion in September, up 0.2% month-on-month (market expected 0.3%), while disposable personal income rose by $52.7 billion, up 0.2%, but real disposable income fell 0.3%. Personal consumption expenditures rose by $113.1 billion, a nominal increase of 0.5% (market expected 0.6%), while real spending rose by only $2.6 billion, an increase of less than 0.1%, essentially flat. Personal savings stood at $911.1 billion, with the savings rate falling to 3.8%.
Previously released September retail sales data came in above expectations overall, which could easily be read as "consumption remains strong." But breaking down the structure reveals a far more cautious conclusion. First, the 0.8% increase relied heavily on just one category: gas stations. Excluding that, growth was only 0.2%; stripping out autos, building materials and food services as well, it was just 0.1%.
Retail data is seasonally adjusted but not inflation-adjusted. If September's 0.6% monthly price increase is factored in, real retail sales were "flatter than flat." And the pressure is still building. The US average gasoline price remains above $4 per gallon, and prices for gasoline and other energy commodities rose 9.2% month-on-month in September (compared with 4.4% in August), with energy spending rising in six of the first nine months of this year.
Observations from the corporate side also point to divergence. United Parcel Service CEO Carol Tome said on the company's earnings call this week that as long as employment remains stable, "consumers will spend because they have assets," but she also stressed that those without assets are already struggling. Coca-Cola, meanwhile, said households across all income levels are prioritizing "value."
Next week, the BLS will release the October nonfarm payrolls report, providing the latest look at US hiring and wage conditions.
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