Civilian worker compensation rose 0.9 percent in the second quarter and 3.4 percent over the past 12 months, the Bureau of Labor Statistics reported July 31 in its quarterly Employment Cost Index release.
Wages and salaries increased 3.2 percent year-over-year, while benefit costs climbed 3.8 percent, according to the BLS data. The quarterly ECI is one of the most closely watched economic indicators for Federal Reserve policymakers monitoring the interplay between labor costs and inflation.
The 3.4 percent annual increase in total compensation reflects continued upward pressure on employer costs, though the pace has moderated from the sharper increases recorded during the post-pandemic inflation surge. Economists use the ECI as a preferred measure of labor cost trends because it controls for changes in the composition of the workforce.
The benefit cost increase of 3.8 percent outpaced wage growth, driven in part by rising health insurance premiums and retirement benefit costs that employers pass through to their compensation packages.
Fed officials have repeatedly cited the ECI as a key data point in their interest rate deliberations. A compensation growth rate that significantly exceeds productivity gains can contribute to inflationary pressure, while a rate that falls too quickly may signal weakening labor demand.
The report covers workers in both private industry and state and local government. Private-sector compensation costs rose at a similar pace to the overall civilian figure, the BLS said.
The data arrives ahead of the Fed’s next scheduled policy meeting, where central bank officials will weigh the latest economic indicators in deciding whether to hold, raise, or lower the federal funds rate.