The increase in U.S. employment costs hits a new low in over four years, easing inflationary pressures

The annual growth rate of labor costs in the United States slowed to 3.5% in the third quarter, the lowest level in nearly four years, further indicating that the cooling job market is effectively alleviating inflationary pressures.

On December 10, data released by the U.S. Bureau of Labor Statistics showed that the Employment Cost Index, which tracks changes in wages and benefits, rose by 3.5% in the 12 months ending in September, with a quarter-on-quarter increase of 0.8%, lower than the 0.9% expected by economists. The data suggests that this trend reflects a weakening momentum in the job market, with employers generally slowing their hiring pace and some companies initiating layoffs.

For the Federal Reserve, which is expected to announce an interest rate cut on Wednesday, the slowdown in labor cost growth is a key positive signal for curbing inflation. Policymakers view the Employment Cost Index as a core monitoring indicator because it can exclude the interference of changes in employment structure and job composition, more accurately reflecting the degree of weakness in the labor market and future inflation trends.

Continued Weakening of Job Market Momentum

Changes in the labor market are reflected not only in the slowdown of cost growth but also in the structural transformation of the employment environment. Recent reports indicate that recruitment activities are decreasing, while the number of layoffs has risen to the highest level since the beginning of 2023.

More concerning is that the voluntary resignation rate, which measures worker confidence, has fallen to its lowest level since 2020, indicating that employees are cautious about changing jobs, and the liquidity in the labor market has significantly decreased.

At the same time, wage growth is also slowing. After adjusting for inflation, private sector compensation has only increased by 0.5% year-on-year, with wages growing by 0.6%, indicating that nominal growth has largely been offset by rising prices. Young workers have been particularly affected in this round of adjustments.

The contraction is not limited to the private sector; the annual wage growth of government employees has also slowed, influenced by cost-cutting measures in the "Government Efficiency Department," leading to a continuous decline in employment in this sector this year. The ongoing reduction in public sector employment not only adds extra pressure to the overall job market but also directly reflects the impact of fiscal tightening policies on labor supply and demand.

Economists and policymakers are closely monitoring the non-farm payroll report and the consumer price index report for November, which will be released next week. These data will provide a more complete economic picture, especially in the context of previous government shutdowns that delayed data releases.

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