US DATA: Wage Growth Moderation Continued In Q4 ECI Report

The Q4 ECI update continued a trend moderation in wage growth. This more comprehensive wage growth metric, which the Fed puts much more weight on when it comes to assessing wage dynamics, offers a softer take than hourly earnings data in recent monthly payrolls reports. 

• The employment cost index was on the soft side of expectations in Q4 as it increased 0.75% Q/Q non-annualized (cons 0.8) after 0.79%.
• It left annualized growth of 3.0% annualized in Q4 for its softest since 2Q21 after 3.2% in Q3, 3.8% in Q2 and 3.6% in Q1.
• The wages & salaries component told the same story, easing to 3.0% annualized in Q4 after 3.2% in Q3, with the private sector-only version also at 3.0% after 3.2%.
• These comprehensive wage growth metrics show a more modest backdrop than the average hourly earnings data from the monthly payrolls report, with its 4.0% annualized in Q4 after 3.9% in Q3 in the latest vintage before Wednesday’s update for January. The non-supervisory component, accounting for approximately 80% of employees is a little closer to ECI metrics but still stronger at 3.4% in Q4 after 3.8% in Q3.
• Coupled with still robust productivity growth (4.9% annualized or 1.9% Y/Y in Q3) and nominal wage growth closer to 3% in 2H25 has started to point to disinflationary pressures stemming from the labor market.
• The return to nominal wage growth rates closer to the pre-pandemic period follows quit rates easily falling back into pre-pandemic ranges for some time now.