Total employment costs (employer-paid taxes such as Social Security and Medicare in addition to the costs of wages and benefits) in America grew by 0.7 percent during the final three months of 2019, according to new data from the Bureau of Labor Statistics. That was unchanged from the prior quarter and the annual rate of growth slid to the lowest level since Q1 2018. The latter highlights how the recent uptick in Americans’ income growth has yet to put a significant strain on margins for many businesses, or result in a marked increase in consumer inflation pressures.
Under the hood, wages and salaries, which make up about 70 percent of total compensation costs, also lifted by 0.7 percent last quarter, while benefits rose by 0.5 percent. One likely factor behind the smaller rise in benefits expenses is that companies often rely a lot more on benefits for talent acquisition and retention during and immediately after a recession because doing so can help reduce costs and incentivize continued work. More small businesses are also working with professional employer organizations (PEOs) recently, which can allow for many efficiencies that make offering competitive benefits more affordable. Perhaps most noteworthy from this morning’s report is that many industries and occupations in America are now experiencing stronger annual wage growth than what was seen in the last expansion. This bodes well for consumer spending continuing to be the main driver of overall economic growth in 2020.
Sources: Econoday, U.S. DoL, Twitter, FRBSL