Wages and salaries climbed in the third quarter to its highest level in 10 years, beating out polled economists’ expectations with a 0.9% increase as opposed to the 0.5% forecasted. The Labor Department also reported that the employment cost index was 0.8% higher, narrowly beating estimates of 0.7% from a Refinitiv survey of economists.
“Wages are grinding higher as the labor market continues to tighten,” said Justin Weidner, an economist at Deutsche Bank. “Wage growth is likely to be over 3 percent again soon.”
The data comes as the Labor Department revealed that job growth in the month of September retreated to its lowest level in the past 12 months, while the unemployment rate fell to its lowest level in almost 50 years. All the data points to a still-strong labor market as employers will have to use higher wages as the primary attraction for talent.
“How hot is the labor market? Hot enough for employers to pony up some more cash to get workers to come work for them,” wrote Chris Rupkey, chief financial economist at MUFG Union Bank, in a note to clients.
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The unemployment rate in the U.S. still remains at a generationally low 3.7%–the lowest level since 1969. Last month, the Federal Reserve installed its third rate hike for 2018 in order to parry future inflationary pressures, and a fourth and final rate hike is expected to cap off the year.
“The employment cost index data adds to the broader evidence that wage growth has continued to trend gradually higher over recent quarters,” said Michael Pearce, senior U.S. economist at Capital Economics, said in a note. “And with labor market conditions still tightening, we expect wage growth will accelerate further from here.”
In addition to the latest data from the Labor Department, ADP and Moody’s reported that private payroll grew 227,000 in October, which bested analyst expectations. Compensation costs for civilian workers edged higher by 2.8%, but benefit costs rose 1.9% for the 12-month period ending in September.
The markets reacted positively to the data in what’s been a volatile October month for stocks. As of 1:00 p.m. ET, the Dow Jones Industrial Average was up over 300 points, while the S&P 500 and Nasdaq Composite were both up over 40 points and 150 points, respectively.
“The drop this month came out of nowhere,” said Craig Birk, CIO at Personal Capital. “Usually that’s a sign of a correction and not a bear market. Usually a bear market rolls more slowly.”
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