Sam Hodgson/Bloomberg

This Week's Biggest Data Point is a Labor-Market Measure Most People Don't Know About

The Employment Cost Index might merit a little more respect

In the alphabet soup of economic indicators, ECI doesn't get much TLC. 

Yet the employment cost index, released Thursday, will be a critical signal of whether wages are starting to perk up. Federal Reserve officials are betting on a rebound in paychecks that's been hard to come by in this recovery, any sign of which would give them more cover to initiate the first rise in the benchmark interest rate since 2006. 

The quarterly ECI gauge is unique in that it tracks how much employers are compensating particular positions in the labor market, rather than aggregate wage growth portrayed in the more-popular average hourly earnings measure published with the monthly employment report. It also has typically foreshadowed moves in the other wage gauges.

So what will it tell us Thursday? Economists are pointing to a firming of labor costs that will indicate a slow, but steady, path toward more normal wages. 

A 0.6 percent increase from the prior quarter — the median in a Bloomberg survey of economists — would be enough for the ECI to notch its strongest year-over-year rise in more than six years. That headline figure includes both wages and benefits paid out to workers.

Perhaps more importantly, the wages and salaries component of the ECI report is inching toward its pre-recession growth rate. This sub-gauge, like the average hourly earnings index, removes government workers from the calculation. The exclusion is helpful as wages for public-sector employees often prove noisy, with shocks like sweeping pay freezes

Here's how the wages and salaries index has been performing:

A significant pickup in the ECI could be enough to keep alive the possibility of a June Fed rate increase, High Frequency Economics Chief Economist Jim O'Sullivan said in a research note. Team June has become a lonely camp, shrinking to 10 percent of economists this month from 45 percent in March, according to Bloomberg survey data. The share of economists projecting the Fed will wait until September almost doubled to 73 percent in the latest poll, from 37 percent last month. 

Strong wage data this week also would instill a little more confidence in the policy makers who are penciling in an inflation pickup over the next several quarters. 

"We will be looking at wage growth. We have not seen wage growth pick up," Fed Chair Janet Yellen said in her last press conference on March 18, noting that it wasn't a "pre-condition" to raise rates. "If we did see wage growth pick up, that would be at least a symptom that inflation would likely move up over time." 

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