US labour cost growth smallest in a year; labour persistently tight


“Easing labor cost growth should not be conflated with benign labour cost growth,” said Sarah House, a senior economist at Wells Fargo in Charlotte, North Carolina. “The labour market remains incredibly tight. While the deceleration in labour costs is a welcome development, it is too soon to declare that it will stay there for the long haul.”

Wages and salaries increased 1 per cent in the last quarter, also the smallest gain since the fourth quarter of 2021, after rising 1.3 per cent in the third quarter. They were up 5.1 per cent on a year-on-year basis after rising by the same margin in the prior quarter.

Private-sector wages rose 1 per cent, slowing from a 1.2 per cent advance in the third quarter. Private industry wages increased 5.1 per cent on a year-on-year basis after rising 5.2 per cent in the July to September quarter.

The moderation in wage growth was more pronounced in the leisure and hospitality sector, where wages and salaries gained 0.9 per cent after increasing 1.8 per cent in the third quarter. Employment in this industry remains below pre-pandemic levels.

But wages in the financial activities industry shot up as did those in wholesale trade. Construction wages rose solidly.

State and local government wages climbed 1 per cent last quarter after surging 2.1 per cent in the third quarter.

Higher inflation, however, continued to eat into consumers’ purchasing power. Inflation-adjusted wages for all workers fell 1.2 per cent on a year-on-year basis in the fourth quarter.

Benefits rose 0.8 per cent last quarter after increasing 1 per cent in the third quarter. They were up 4.9 per cent on a year-on-year basis.

The Fed’s rate-hiking cycle, the fastest since the 1980s, is dampening house price inflation. The S&P CoreLogic Case-Shiller national home price index, covering all nine US census divisions, increased 9.2 per cent on a year-on-year basis in November, pulling back from October’s 10.7 per cent gain.

House prices measured by the Federal Housing Finance Agency rose 8.2 per cent in the 12 months through November after climbing 9.8 per cent in October. A persistent shortage of homes for sale is, however, likely to prevent a sharp decline in house prices.

“A dearth of inventory, no forced selling and the back-off in mortgage rates are helping to contain the fallout,” said Robert Kavcic, a senior economist at BMO Capital Markets in Toronto.

Despite consumers’ upbeat views of the labour market, they remained gripped by fears of a recession over the next six months, with many adopting a wait-and-see attitude toward big-ticket purchases. The Conference Board’s consumer confidence index fell to 107.1 this month from 109.0 in December.

Consumers’ 12-month inflation expectations rose to 6.8 per cent from 6.6 per cent last month.

“We project that a moderate recession will take hold by mid-year, although the downside for this downturn should be limited by solid financial fundamentals for most households and businesses,” said Ben Ayers, senior economist at Nationwide in Columbus, Ohio.