U.S. Labor Cost Growth Cools in Fourth Quarter

Growth in US labor costs unexpectedly slowed in the fourth quarter, leading to the smallest annual increase in 4-1/2 years, as softening demand for labor restrained wage gains, Lucia Mutikani reported for Reuters.

The ECI is viewed by policymakers as one of the better measures of labor market slack and a predictor of core inflation because it adjusts for composition and job-quality changes.

The Employment Cost Index (ECI), the broadest measure of labor costs, rose 0.7% last quarter after advancing 0.8% in the July–September quarter, the Labor Department’s Bureau of Labor Statistics said.

Economists polled by Reuters had forecast the ECI rising 0.8%. Labor costs increased 3.4% in the 12 months through December, the smallest gain since the second quarter of 2021.

They rose 3.5% in the year through September.

The ECI is viewed by policymakers as one of the better measures of labor market slack and a predictor of core inflation because it adjusts for composition and job-quality changes.

A lackluster labor market is curbing wage growth. The government reported last week that there were 0.87 job openings for every unemployed person in December compared to 0.89 in November.

That ratio has dropped from about 1.08 a year ago.