US labor cost growth moderates in third quarter amid easing labor market conditions
By Lucia Mutikani
WASHINGTON, Dec 10 (Reuters) - U.S. labor costs increased slightly less than expected in the third quarter as a softening labor market curbed wage growth, which bodes well for the inflation outlook.
The report from the Labor Department on Wednesday followed on the heels of data on Tuesday showing resignations dropped to a five-year low in October. That supported views by Federal Reserve officials that the labor market was not a source of inflation. The labor market is easing amid low supply and demand for workers blamed by economists on reduced immigration and import tariffs. Import duties have boosted prices of some goods.
U.S. central bank officials are expected to cut the Fed's benchmark overnight interest rate by another 25 basis points to the 3.50%-3.75% range at the end of a two-day meeting later on Wednesday out of concern for the labor market. The Fed has lowered borrowing costs twice this year.
"With the quits rates dropping and demand for workers fading in the second half of 2025, we expect wage growth to recede further in 2026," said Ben Ayers, senior economist at Nationwide.
"The reduced pressure from wage costs should be welcomed by firms and could help to drive improved business investment in the new year."
The Employment Cost Index (ECI), the broadest measure of labor costs, rose 0.8% in the last quarter, after gaining 0.9% in the second quarter, the Labor Department's Bureau of Labor Statistics said. Economists polled by Reuters had forecast the ECI advancing 0.9%.
Labor costs increased 3.5% in the 12 months through September, the smallest year-on-year gain since the second quarter of 2021, after rising 3.6% in the year through June. The report was delayed by the 43-day government shutdown and the BLS noted that "survey response rates decreased in September."
Data collection had not been completed before the longest shutdown in history, the agency said.
"This may indicate that these results could experience higher revisions than usual," said Eugenio Aleman, chief economist at Raymond James. "Nevertheless, this is good news ... because these numbers reinforce the Fed chairman's argument over the last year that labor costs, so far, are not behind the recent increase in inflation."
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.
While the moderation suggested wages posed no threat to inflation, price pressures remain elevated partly because of tariffs, eroding consumers' buying power. Cooler wage growth could also hamper consumer spending.
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