US: Employment cost index to post 0.7% for Q1 2018 – Nomura

Analysts at Nomura are forecasting a reading of 0.6% q-o-q for the wages and salaries component of the US Q1 2018 employment cost index (ECI) reading, bringing the y-o-y rate down to 2.4%.

Key Quotes

“Wage growth was steady in the first three months of the year, pointing to a solid ECI reading. For total ECI, of which the wages and salaries component comprises roughly 70%, we expect a reading of 0.7% q-o-q (2.6% y-o-y), likely partly boosted by one-time bonuses as a result of the tax bill.”

“The Q1 reading of the employment cost index (ECI) will garner more attention than usual. In particular, it will be the first comprehensive look at compensation changes since the new tax law took effect. In response to the new tax law, a number of companies reported one-time bonuses as well as some permanent wage increases for employees. More timely measures of wage growth, such as average hourly earnings (AHE) from the monthly employment report, do not include one-time bonuses in their calculations. However, the bonuses should show up in the ECI’s “benefits” series, which includes nonproduction bonuses, while the permanent wage increases will show up in the “wages and salaries” sub-component.”

“As there seemed to be more companies delivering bonuses as opposed to wage increases, the quarterly increase in total ECI (benefits plus wages and salaries) will likely be greater than the growth rate of wages and salaries alone, consistent with our forecast.”