'IGNORE AT YOUR OWN PERIL': An overlooked economic report just revealed something big about wage growth
On Wednesday, the oft-overlooked employer costs for employee compensation, or ECEC, report from the BLS was released, showing that in March employer costs rose 4.9% year-over-year, the same pace as in December despite a general economic slowdown to start 2015.
This measure is similar to the employment cost index - which showed wages rose 2.6% in the first quarter and 2.8% over the prior year - but also includes compensation shifts across industries intentionally excluded by the ECI.
In a note to clients following Wednesday's report, Samuel Coffin at UBS cautioned investors to "ignore at your own peril" the latest ECEC report, writing:
Employer costs for employee compensation (ECEC) were up 4.9%y/y in March, the same rapid pace as in December despite Q1 weakness in growth. Private sector wages and salaries actually accelerated to 4.7%y/y from 4.6%. If Fed Chair Yellen is targeting 3-4% wage and salaries inflation as a signal of labor market repair, maybe she's there.
Now, despite the ECI and ECEC topping expectations, average hourly earnings are still a bit lackluster, though they did increase at the fastest annual pace since 2009 in May.
UBS notes that the ECEC capture mostly an acceleration in non-wage items - things like bonuses and 401(k) contributions - and says that as a result, the jury is out whether this report is necessarily indicative of inflationary pressures to come.
But the message, as UBS sees it, is that on balance, wage pressures are being understated.
On Wednesday, we highlighted commentary from Citi that indicated some on Wall Street are starting to talk about July potentially being the first meeting where the Federal Reserve raises rates.
But throughout the last year, the main ingredient missing from the Fed's equation has been wage growth. And it looks like it's here.
Here's the breakdown from UBS, showing that pressures have been widespread across the compensation universe.
And here's the increase in ECEC compared to the ECI.
