US employers see moderate third-quarter labor-cost growth

US labor costs rose moderately in the third quarter, pointing to contained wage inflation.^[1] Labor costs are what businesses spend to employ workers; their pace of growth affects profits and how much pressure employers face to raise prices.

Contained wage pressure helps labor-intensive businesses manage expenses: other things equal, they face less pressure to absorb payroll increases through higher prices or lower profits.^[1] If broader inflation also stays contained, the Fed has more room to consider rate cuts, which could reduce borrowing costs for businesses and their customers; that outcome still depends on subsequent data.

On October 30, the two-year Treasury yield stood at 4.56%, down from 4.61% the previous session, while the ten-year yield fell from 4.98% to 4.94%. Treasury yields help set borrowing costs across the economy, but these moves alone do not establish that the labor-cost news caused the decline.

Impact

• Labor-intensive servicesOpportunity

  Employers such as restaurants and hotels face more manageable wage pressure when setting prices and staffing budgets. If sales hold up, moderate cost growth can help protect profits, though individual companies' payroll costs may differ.^[1]

• Housing and other credit-sensitive purchasesOpportunity

  Homebuilders and sellers whose customers borrow to make purchases could gain demand if contained wage pressure helps make rate cuts possible and loan rates follow lower. The benefit depends on broader inflation staying contained and financing costs actually falling.^[1]

What to watch next

• November 5 third-quarter nonfarm productivity data will show how output per hour changed, helping assess whether efficiency gains can absorb higher labor costs.
• November 6 average hourly earnings and payroll data for October will test whether wage pressure remains contained and employment demand holds up.