The Employment Cost Index matched forecasts and jobless claims sit near historic lows. But inflation-adjusted wages and salaries for civilian workers fell 0.6% over the past year, the latest sign that household buying power is under strain.
The weak point in the U.S. economy is not jobs. It is paychecks.
Compensation costs for civilian workers rose 0.8% in the third quarter, seasonally adjusted, the Bureau of Labor Statistics said Friday, matching economists' expectations. Wages and salaries rose 0.7% and benefits 0.9%. Over 12 months, civilian wages and salaries were up 3.1%. In private industry, union workers' wages rose 4.3% against 3.0% for nonunion workers.
That was not enough to keep up with prices. Adjusted for inflation, civilian wages and salaries fell 0.6% over the year, and total compensation fell 0.4%, according to the BLS.
Three readings, one direction
Friday's report adds to other recent readings. In September, inflation-adjusted consumer spending was flat and real disposable income fell 0.3%, the Commerce Department said, leaving the personal saving rate at 3.8%. The University of Michigan's consumer sentiment index stood at 48.0 this month, with concerns about purchasing power dominating.
Those numbers sit under a strong headline. The economy grew at a 3.4% annualized rate in the third quarter, and final sales to private domestic purchasers rose 4.9%.
Not a layoffs story
Employers are keeping workers. Initial jobless claims fell by 1,000 to 194,000 in the week ended Oct. 24, below the 199,000 economists expected, and the four-week average was 196,750. Continuing claims fell by 21,000 to 1.701 million. In mid-July claims hit 189,000, the lowest since 1969.
Price pressure in business surveys is building at the same time. The Chicago purchasing managers' index fell to 55.3 in October from 58.8 and below forecasts of about 56, but its prices-paid gauge jumped to its highest since December 2021, and its employment gauge to its highest since April 2021.
What it means for the Fed
For policymakers who want to raise rates again, the case is intact: 3.4% growth, claims near multi-decade lows, firms reporting higher input costs and nominal pay rising in line with forecasts. Two officials dissented in favor of a hike this week.
The other side of the argument is that the squeeze is on real incomes, not on the labor market, and that a rate increase would land on households already losing ground. A consumer whose pay trails inflation has less room to keep spending at the pace the third quarter implied.
What to watch
The October jobs report on Nov. 6, the second estimate of third-quarter GDP and October spending data on Nov. 25, and the Fed's December meeting. The next Employment Cost Index is due Jan. 29, 2027.