Jan 31, 2024 - Economy

Pay growth slowed in Q4, another sign the labor market is cooling

Data: Bureau of Labor Statistics; Chart: Axios Visuals
Data: Bureau of Labor Statistics; Chart: Axios Visuals

Pay growth kept slowing in the final months of 2023, according to the Employment Cost Index released Wednesday morning.

Why it matters: It's more evidence the labor market is cooling down — this time, from a key measure of compensation watched closely by the Fed.

  • The final data point before Wednesday's Fed decision is good news for officials who want more proof disinflation is underway and that an upward spiral of wages and prices isn't setting in.

By the numbers: Wages and salaries grew 0.9% in the three months ending in December for all workers, compared to 1.2% in the previous three months.

The big picture: For American workers, the slowdown in inflation means that wages are still growing in real terms.

  • For instance, inflation-adjusted wages and salaries among private sector workers rose 0.9% in the 12 months ending in December, up from 0.8% through September.

Zoom out: The slowdown in nominal wage growth comes alongside other signs suggesting less frantic job-switching and demand for workers.

  • "[I]f new jobs aren't offering good enough pay, there is less incentive for employers to pay up so much to retain staff, and you get this cycle of slowing pay and benefits," James Knightley, chief international economist at ING Bank, wrote in a note.

Of note: The ADP report Wednesday morning showed the private sector added 107,000 workers in January, down from the 158,000 added the prior month.

  • ADP also showed slower pay growth: Wages for job-stayers rose 5.2% in January compared to a year earlier, down from 5.4% the prior month. For job-switchers, it rose 7.2%.
  • "Across industries, you're still seeing solid pay growth, but not supercharged," ADP chief economist Nela Richardson told reporters. "We think that's over."
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