A 1.1% rise in benefits costs and a 0.9% increase in wages and salaries lifted total compensation higher by 1.0% between Q2 and Q3. That's above expectations (e: +0.9%) and the fastest in six quarters. There hasn't been a gain of more than 1.0% since Q1"04.
Wages and salaries, representing about 73% of the compensation index, have risen by 0.9% for a second straight quarter. From a year ago, the wages and salaries index is up 3.2%, the most since Q2"02 (3.5%).
Benefits costs, representing the remaining 27% of total compensation, rose by their fastest in four quarters. The trend is toward strength, with a Q1 rise of 0.5% followed by a Q2 advance of 0.8% and now the Q3 increase of 1.1%.
Extrapolating that trend yields a 1.4% advance in Q4 and a 3.8% year-ago rise. Keep in mind, from Q1"03 to Q1"05, the average rise in the benefits index was 1.6%, so the latest increases are not terribly destabilizing to the inflation outlook. During the same period, however, wages and salaries rose an average 0.7% and we are apt to see more uncomfortable inflation readings from this category in the months ahead.
For private industry, wages and salaries slowed to a 0.8% climb in Q3 from a 0.9% advance in Q2. For state and local government workers, compensation costs jumped by 1.4% as wages and salaries rose by 1.4% and benefit costs rose by 1.5%. Wages and salaries accelerated from a 0.9% gain in Q2 while benefit costs rose by 1.5% for a second straight quarter. That's inflationary but this category represents a much smaller segment of the total economy than does private industry.
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