– July 31, 2018

Total compensation costs for all civilian workers rose 0.6 percent in the second quarter, less than the 0.8 percent rise in the first quarter. Over the past 12 months, total compensation is up 2.8 percent versus 2.7 percent in the first quarter.

For private sector employees, total compensation was up 0.6 percent for the quarter, less than the 1.0 percent rise in the prior quarter. Within compensation, wages and salaries rose 0.6 percent while benefits costs rose 0.8 percent. From a year ago, wages and salaries are up 2.9 percent, the same as in the first quarter, while benefits costs are up 2.8 percent versus a 2.5 percent gain in the first quarter (see chart).

Wages and salaries cost increases have been slowly drifting higher since hitting a low just after the end of the last recession. The modest acceleration in wages and salaries is consistent with the slowly accelerating trend of average hourly earnings within the monthly Employment Situation report, typically released the first Friday of each month.

Private goods-producing industries saw wages and salaries rise 2.7 percent while private service-producing industries saw wages and salaries increase by 2.9 percent. Notable within the goods-producing sector were construction industries’ wages and salaries, which were up 3.2 percent for the past year, and sales and office workers in manufacturing companies, whose wages and salaries were up 3.1 percent.

Within the private service-producing sector, production, transportation, and material-moving workers saw gains of 4.0 percent while sales and office workers as well as general service occupations saw gains of 3.6 percent.

On the benefits side, goods-producing industries saw costs rise 2.9 percent from a year ago, led by a 3.3 percent increase in manufacturing industries. For service-providing industries, benefits costs rose 2.8 percent.

Overall compensation-costs increases have trended higher in recent years as the tight labor market tilts the bargaining process toward workers. Still, the rate of increase remains moderate by historical measures. Continued acceleration would likely precipitate more aggressive monetary-policy tightening, particularly if the accelerating compensation costs flowed through to consumer prices. For now, Fed policy is likely to remain on a slow path of rising interest rates and balance sheet reduction, supporting the current expansion.

Robert Hughes


Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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