Friday Rant: Cost of Employee Benefits Is Virtually Unchanged in Q3 – Good News or More Uncertainty?

The Employment Cost Index (ECI) that reports changes in the costs of labor for businesses was widely expected to continue increasing in Q3. It did, but by only .3% according to the Bureau of Labor Statistics, released this morning. "Wages and
salaries (which make up about 70 percent of compensation costs) increased 0.3 percent, and benefits(which make up the remaining 30 percent of compensation) were virtually unchanged at 0.1 percent." And while lower than expected, the big news is the negligible increase in benefit costs which had been up 4% year-on-year in Q2.

If this is not just a quarterly blip, it could become a significant impetus for hiring. Employers have been paying more for workers while wages have remained relatively flat. Increasing spend on hiring new workers increases productivity while paying higher benefit costs just cuts into profit. And while GDP grew 2.5% in Q3, this appears to be attributable to increased consumer pre-Fall spending whose inflation adjusted after tax income shrank by -1.7% according to the U.S. Commerce Department in the same period.

According to today's Bloomberg News, "Wages climbed at the slowest pace in a year, while benefit costs were the tamest since 1999...[and] 'Labor costs remain well-contained, as we would expect during a period of high unemployment,' Robert Dye, chief economist at Comerica Inc. in Dallas, said before the report. 'That factors positively for corporate profits, but it also suggests that wages are suffering, and that is contributing to stagnate real disposable income.' "

Robust business investment is key to recovery and expansion that will spurn hiring and begin to alleviate our continued employment crisis. But economic uncertainty is impeding investment. If employee benefit costs stop rising – as today's news may portend – and our "elected representatives" get off their re-election obsessed duffs and pass long term tax legislation, maybe we could get this recovery moving.

- William Busch

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