Contrary to the wage numbers we got from the Jobs Report for the last two months, today’s Employment Cost Index Report shows no signs that nominal private-sector wage growth is slowing down. Accelerating wage growth accompanied by a decline in GDP for two consecutive quarters further complicates the Federal Reserve’s fight against inflation.
Here are key takeaways of today’s report:
- Private-sector wages and salaries grew 5.7% over the year, at a record-fast pace. Wage growth accelerated across the board, in almost every single industry and region. Paychecks grew at 5.3% for all civilian workers, and 5.7% for the private sector—both are at record high levels.
- We’re seeing the fastest nominal wage growth, in both goods-producing (4.7%) and service-providing industries (5.9%), in series history.
- Paychecks in accommodation and food services grew at 8.5%, the fastest pace across all industries. With 8% fewer workers than it had in February 2020, the industry still has a huge jobs hole to fill and is struggling to recruit workers.
- Wage growth accelerated in nursing and residential care facilities (7.7% YoY). Nursing and residential care facilities are similarly lagging behind in the employment recovery and are providing services with 11% fewer employees than in February 2020. Since the industry still has a lot of hiring catch up to do, care facilities are hiring at a rapid pace and are offering above-average salary increases to recruit candidates in a tight market.
- Inflation is eroding workers’ purchasing power. Real wages are down 3.5% for civilian workers overall, and 3.1% for private-sector workers. Despite record-high nominal wage growth, inflation nearing double-digits keeps eating up workers’ wage gains.
- Production costs are high in multiple other categories as well. The overall cost of labor to employers in the private sector grew at a record-high 5.5% in June over the year. But many other input prices—such as energy costs—are growing far more quickly (see PPI numbers for June). That said, since labor costs are the main cost for most firms, growing compensation costs present a serious challenge for many businesses, especially small businesses.