Employment Cost Index 4Q24: Labor Crossroad Dead Ahead
ECI is worth pondering as the supply and demand for labor set for some disruption in services and select industries.
The Employment Cost Index (ECI) stood at +3.8% for total compensation for all civilian workers. That level was a tick lower than 3.9% in 3Q24 and down from 4.2% for Dec 2023. The rolling 3-month change was down to 0.6% from 0.9% in 3Q24 vs. 0.7% in 4Q23. These data points come with an asterisk for “nonfarm workers.”
The report was in line with expectations and does not upset the general sense of status quo for inflation with some big tariff news ahead for the weekend and deportation scale still somewhat of a mystery.
The trend is constructive but could turn into a “rubber meets road” moment in 2025 as the supply-demand balance of labor gets challenged by deportation and the theories on how deportation will play out by region and occupation. The “talk” will get a real-world test in many services sectors but notably in agriculture, construction, and a range of services industries with low pay and a small line at the door.
The ECI release is one of those econ data sets to peruse and ponder for what is in there and what is not. The FOMC has not flagged labor as an inflation threat, but we would highlight that their actuarial history of mass deportations (at somewhere between 1 million and 20 million as advertised in election season) might be a bit on the light side for their models.
The above chart plots the ECI timeline from 2001 through the current release. We see the cost index down from the 5% handle highs in 2022 to a high 3% range. You can fish around in the data categories and see some lag times catching up through collective bargaining deals and look at total compensation including benefits and also at wages and salaries more narrowly.
We see private industry at 3.6% in 4Q24 vs. 4.1% in 4Q23. Wages and salaries in that bucket was +3.7% Dec 2024 vs. 4.3% Dec 2023. State and local government was higher at +4.7% Dec 2024, flat to 3Q24 but up from 4.6% in Dec 2023.
The union vs. non-union differential was notable. Private industry collective bargaining workers saw +5.1% compensation growth vs. 3.4% for non-union for the 12 months ended 12-31-24. Wages and salaries posted a +5.5% increase for private sector unions and +3.5% for non-union. With only 5.9% of the private sector unionized, the lower compensation for non-union growth is a more important number in the mix.
Public sector workers have a unionization rate of 32.2% or a multiple of the private sector. The BLS updates the union membership data once a year and it was just filed this past week. Total unionization rates (private and public) vary widely by state (no surprise there). For example, the higher end over the 20% line include Hawaii at 26.5% and NY at 20.6%. On the lowest end of the unionization rate scale, North Carolina was 2.4% and South Dakota at 2.7%.
The above chart plots the ECI vs. unemployment rates across the timeline. The patterns are more evident back in the steep recession into 2009 in terms of the ECI downside. The COVID crisis saw a rapid rise in the ECI from 2.4% in 2020 to 5.1% in 2022. We remain well above the long term median for ECI of 2.8% with a higher median unemployment rate linked to that 2.8% ECI median.
See also:
Employment Cost Index:
Employment Cost Index Sept 2024: Positive Trend 10-31-24
The Employment Cost Index June 2024 8-1-24
Employment Cost Index March 2024: Sticky is as Sticky Does 4-30-24
Employment Cost Index Dec 2023: Compensation Mixed Picture 1-31-24
Employment Cost Index Sept 2023: Expect the Expected 10-31-23
Employment Cost Index: Rings of the Redwood 7-28-23
Employment Cost Index: Slow Motion 4-28-23
Employment Cost Index: Labor vs. Capital …Tide Turning or Swirling? 2-1-23