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US: Employment cost index surged by 0.8% in Q3 – Nomura

Analysts at Nomura note that the US employment cost index (ECI) showed a 0.8% q-o-q increase for Q3, above expectations (Nomura: 0.5%, Consensus: 0.7%), consistent with steady wage pressure in a tight labor market.

Key Quotes

“Wages and salaries, accounting for roughly 70% of the index, increased 0.9% while benefit costs increased 0.4%. The pickup in wage pressure was relatively broad-based across occupational and industry groups. For private industry workers, wages increased 3.1% y-o-y in Q3, up from 2.9% in Q2.”

“For Friday, we expect a 0.2% m-o-m increase in average hourly earnings (AHE). The sharp decline in AHE from last October will fall out of the 12-month calculation as base effects will likely help to increase the y-o-y rate to 3.1% from 2.8% in September. However, note that weather effects may distort the AHE reading for October due to the impact of Hurricanes Florence and Michael (inclement weather tends to disproportionately impact aggregate hours data).”

“Over the medium term, we expect continued gradual upward pressure on wages as the unemployment rate falls further.”