- The Employment Cost Index rose 1% in the fourth quarter, missing the 1.2% estimate.
- The print marks a slowdown from the third quarter's historic 1.3% surge.
- The fourth quarter saw job openings hover near all-time highs and quits hit new records as the labor shortage lingered.
Wages in the US boomed yet again through the fourth quarter – just not as much as expected – as the labor market remained unusually tight and businesses clamored over a limited pool of workers.
The Employment Cost Index – a popular measure of nationwide wage growth – rose 1.0% in the final three months of 2021, the Bureau of Labor Statistics announced Friday morning. That came in below the median forecast of 1.2% growth from economists surveyed by Bloomberg and marked a deceleration from the prior quarter's 1.3% jump.
The print still shows wages continuing to shoot higher at an extraordinary pace as firms scrambled to rehire. The 1.3% gain in the third quarter marked the strongest wage growth in data going back to 2001, and the fourth-quarter reading is still much higher than levels seen before the pandemic.
The wage measure also grew 4% over the past year, marking the biggest annual ECI gain on record. Factors including virus fears, childcare costs, and skills gaps left many companies unable to rehire as the country started to reopen in early 2021. The phenomenon quickly came to be known as a labor shortage, and firms started hiking wages at a historic pace in the first quarter in hopes of attracting workers faster. The trend has won rare bipartisan backing, with lawmakers on both sides of the aisle cheering the leap in worker power.
Several signs point to the labor shortage lasting well into 2022. Job openings totaled 10.6 million in November, down slightly from the prior month's count but still well above the pre-pandemic average. The ratio of unemployed-people-per-job-opening held flat at a record-low 0.7, indicating there remained far more jobs listings than workers to fill them.
Pandemic-era quitting intensified as well. A record 4.5 million workers walked out of their jobs in November, marking the fifth consecutive month that more than 4 million people quit. The wave of quits, also known as the "Great Resignation," has also hindered companies' attempts to rehire.
Recent jobs reports reflect that slowdown. The US added just 199,000 nonfarm payrolls in December, making the last month of the year the weakest for job creation. The count fell well below the median estimate for 450,000 new jobs and showed payroll growth slowing for a second straight month.
The slower pay growth will likely ease some worries around a possible wage-price spiral. Conservative lawmakers and economists have raised concerns around the wage boom worsening the inflation problem. The fears aren't unfounded; the inflation crisis of the 1970s saw soaring wages lead to greater spending and, in turn, larger price hikes.
Federal Reserve Chair Jerome Powell noted the central bank was watching for such a trend, saying Wednesday that the Fed is "attentive to the risks that persistent real wage growth in excess of productivity could put upward pressure on inflation." Powell separately said in December that wage growth "has not been a major contributor" to elevated inflation.
With prices still ripping higher, easing wage growth likely comes as a welcome sign for Powell and the Fed.
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