Wages and salaries for private sector workers (excluding incentive paid occupations) increased by 1.0% in the second quarter, with a year-on-year growth rate dropping from 4.2% in the previous quarter to 4.1%, compared to 4.8% in the same period last year.
The US labor cost growth index unexpectedly slowed in the second quarter, strengthening the signal of easing inflation, paving the way for a rate cut in September.
On July 31, according to the latest data released by the US Bureau of Labor Statistics, the Employment Cost Index (ECI), which measures wages and benefits and is used by the Federal Reserve, increased by only 0.9% in the second quarter, which was lower than the market expectation of 1% and lower than the previous value of 1.2%. Prior to this, the index saw its largest quarterly increase in a year in the first quarter of 2024.
After the announcement, the yield on 2-year Treasury bonds briefly fell below 4.32%, and the yield on 5-year Treasury bonds also briefly fell below 4%, both reaching their lowest levels since February.
This cooling not only exceeded market expectations, but also correlated with Federal Reserve Chairman Powell's previous testimony. Powell testified before Congress that:
The job market is no longer a force of inflation.
ECI is one of the important indicators used by the Federal Reserve to assess the labor market conditions and predict core inflation. It can be adjusted based on changes in structure and job quality.
Some analysts believe that the slowdown in private sector wage growth has led to this moderate rise in labor costs, further proving that inflation is returning to a downtrend. The data shows that wages and salaries for private sector workers (excluding incentive compensation) increased by 1.0% in the second quarter, with a year-on-year growth rate dropping from 4.2% in the previous quarter to 4.1%, compared to 4.8% in the same period last year.
Other recent indicators also show a cooling in wage growth, as well as a slowdown in recruitment pace and an increase in unemployment rates. Data on Tuesday showed that job vacancies continued to decline in June, with recruitment levels dropping to their lowest level since 2020.
In addition, some analysts predict that, due to the slight increase in ECI in the previous quarter, the Federal Reserve may maintain interest rates at the upcoming two-day policy meeting.
Editor/Emily