Analysis
US Wage Growth Slowed to a Five-Year Low of 3.1%
US wages and salaries rose 3.1% in the year to September, the slowest pace in five years, the BLS said on Friday. Benefit costs grew 3.9%, the fastest in three years, while inflation-adjusted pay fell 0.6%.
Pay is no longer the part of the US economy pushing inflation higher. The Bureau of Labor Statistics' employment cost index, released at 8:30 a.m. on Friday, October 30, showed total compensation for civilian workers rising 0.8% in the third quarter, in line with forecasts and down from 0.9% in the second. Wages and salaries rose 0.7% after 0.9%, and benefit costs 0.9% after 1.0%.
The annual figures show where the pressure sits. Over the 12 months to September, wages and salaries grew 3.1%, down from 3.5% a year earlier and, by Haver Analytics' count, the slowest pace in five years; in private industry, wage growth was the lowest since the first quarter of 2021. Benefits went the other way, rising 3.9%, the most in three years, and health benefits for private employers rose 6.4%, matching the 20-year high reached at the end of 2025. Total compensation grew 3.4% for a fourth straight quarter, a run of stability Haver said has occurred only about 2% of the time since 1982.
Adjusted for inflation, workers lost ground. Real wages and salaries fell 0.6% over the year, the weakest reading since early 2012, according to Haver, as consumer prices outpaced pay. The gap between groups is wide: union workers in private industry saw wages rise 4.3%, against 3.0% for nonunion workers, and wage growth for state and local government employees slowed to 3.2% from 3.5%.
For the Federal Reserve, the report cuts against one of the arguments for raising rates further. Officials held the target range at 3.75% to 4% on Wednesday, with Governor Lisa Cook and Cleveland Fed President Beth Hammack voting for a hike, and Thursday's data showed core PCE inflation rising to 3.1% in September. A labour market feeding inflation would show wages accelerating; instead, they are decelerating while energy drives prices. Rising benefit costs are a genuine expense for employers, though, and health insurance premiums tend to show up in prices with a lag.
The household picture that emerges is consistent with the spending data released a day earlier, when real consumer spending in September barely grew. Paychecks are rising about 0.6 percentage point a year more slowly than prices, and the part of compensation growing fastest, health coverage, is not money workers can spend. That is a squeeze on demand rather than a wage-price spiral, which leaves the Fed's hawks arguing about inflation expectations rather than about pay.