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Annual growth in U.S. labor costs decelerated in the third quarter to the slowest pace in four years, adding to evidence that a softening job market is helping limit inflationary pressures.
The employment cost index, which tracks changes in wages and benefits, increased 3.5% in the 12 months ended in September, according to Bureau of Labor Statistics figures out Wednesday. On a quarterly basis, the gauge rose 0.8%.
The latest figures highlight a job market that has lost momentum as many employers temper the pace of hiring, while some reduce headcounts. For Federal Reserve officials, who elected to lower interest rates Wednesday, tamer growth in employment costs is seen helping restrain inflation.
Figures out Tuesday from the bureau showed hiring fell and layoffs climbed to the highest level since early 2023. Meanwhile, the rate of voluntary quits fell to the lowest since 2020, underscoring fading worker confidence in finding another job.
That years-long shift has coincided with slower wage growth, with younger employees seeing some of the most pronounced pullbacks.
The employment cost index report showed wages and salaries for civilian workers rose 0.8% in the three months through September, and 3.5% from a year earlier.
Adjusted for inflation, private-industry compensation grew 0.5% from a year earlier, while wages increased 0.6%. On an annual basis, private compensation grew at the slowest pace since a decline in early 2023, helping explain Americans' mounting frustrations about affordability.
Government workers also saw annual wage growth slow. The sector has experienced job loss each month this year amid the Trump administration's efforts to downsize federal bureaucracy.
A wave of government data due next week, including the November jobs and consumer price index reports, will give economists and policymakers a much-needed update on the state of the economy after the longest-ever government shutdown.
While there are a number of other earnings metrics published more frequently, economists and central bank policymakers tend to favor the employment cost index because it's not distorted by shifts in the composition of employment among occupations or industries.
The bureau noted that data collection was not completed prior to the federal government shutdown and that survey response rates decreased in September.