In the first quarter of 2024, labor costs in the United States saw a significant increase, with wages and benefits rising more than anticipated. According to reports from Reuters, Axios, Hiringlab, and CNN, employment costs increased by 1.2% on a seasonally adjusted basis in Q1 2024. This marked the biggest quarterly increase in a year and was driven by both wage growth and benefits costs.
The Labor Department's Employment Cost Index (ECI) showed that wages and salaries for all workers rose 4.4% over the past year, slightly above the 3% seen before the pandemic. Union workers experienced stronger wage growth than non-union workers due to new work agreements, with union compensation increasing by 6.3% compared to non-union worker's gain of 4.1%. This trend was observed across various sectors and industries.
Compensation for state and local government workers saw a particularly notable increase of 4.8% over the past year, reflecting the catch-up effect as governments adjusted pay to remain competitive in the labor market.
Benefits costs also increased, rising by 1.1% from a prior quarterly gain of 0.7%. This trend was driven by higher health insurance and retirement benefits costs for both public and private sector workers.
The pick-up in labor costs comes amid signs of lingering inflationary pressures in the economy, which will likely delay the much-anticipated interest rate cut from the Federal Reserve later this year. Despite Chair Powell's previous statements that wages were not a key factor in the nation's inflation outlook, employment costs remain high and are contributing to overall price increases.
The labor market continues to flourish, with strong employer demand and worker productivity. However, these trends may raise concerns for Federal Reserve officials worried about the potential impact on inflation. The Fed is due to begin a two-day policy meeting on Tuesday as they weigh the implications of these data points.
