U.S. employment costs jumped by the most on record at the start of the year, heightening concerns about persistent inflation that set the stage for more forceful policy action by the Federal Reserve.
The employment cost index, a broad gauge of wages and benefits, advanced 1.4% in the first quarter, according to Labor Department figures released Friday. That followed a 1% advance seen in the final months of 2021.
Stock-index futures fell on earnings misses, while the yield on the 10-year Treasury note climbed. Expectations for a 75 basis-point rate increase at the Fed’s June meeting jumped after the release.
Compared with a year earlier, the labor costs measure jumped 4.5%, the most in data back to the early 2000s. Unlike the earnings measures in the monthly jobs report, the ECI is not distorted by employment shifts among occupations or industries.
Compensation gains last quarter were broad-based across industries, including strong advances in manufacturing and at service providers.
Wages and salaries for civilian workers climbed 4.7% from a year earlier, also the most on record. Benefits rose 4.1%. Excluding government, private wages increased 5% from a year earlier.
The stretch of healthy gains in employment costs underscores how rising wages are a key part of the inflationary picture, and if sustained, will keep pressure on the Fed to take a more aggressive approach to policy. In March, Fed Chair Jerome Powell said the current pace of pay increases is not consistent with the central bank’s 2% inflation goal.
Even so, workers’ wages aren’t keeping pace with decades-high inflation, squeezing households and threatening to slow consumption.
A separate report Friday showed the Fed’s preferred gauge of inflation, the personal consumption expenditures price index, rose 6.6% in March from a year ago, the most since 1982.
Still, inflation-adjusted spending has increased over the last three months, signaling consumers continue to make purchases in the face of rising prices.
Job openings are near record highs, leading businesses big and small to raise wages to attract and retain workers. And while elevated labor costs have weighed on some companies’ margins, many businesses have passed along those costs to consumers through higher prices.