US Labor Costs Rise in Q2 as Wage Growth Remains Controlled

The Employment Cost Index, the Labor Department's primary gauge for labor expenses, climbed 0.9% last quarter, outpacing the 0.8% rise projected by economists. While this matched the growth seen in the first quarter, the underlying annual wage increase of 3.2% represents the smallest gain since 2021. When adjusted for inflation, wages actually slipped 0.3% over the 12-month period ending in June.

Driving the quarterly increase was a notable rebound in goods-producing industries, where wages jumped 1.2%. Construction sector pay served as a primary catalyst, climbing 1.5% after remaining stagnant earlier in the year. Conversely, wage growth in service-providing industries held steady at 0.8%, while the wholesale trade sector saw a sharp deceleration to just 0.1% growth. Benefit costs for all workers rose 1.0%, cooling from the 1.2% surge observed in the January-March period.

Priscilla Thiagamoorthy, a senior economist at BMO Capital Markets, noted that the report confirms strong job gains from earlier in the year have not translated into meaningful wage pressure. Economists characterize the current labor market as a low-hire, low-fire environment, reinforcing the view that cost pressures are not emanating from the workforce. As Wall Street reacted with lower stock prices and a rise in Treasury yields, the data provides a baseline for the Federal Reserve as it navigates the balance between cooling inflation and sustaining the economic recovery.