The Labor Department reported Thursday that unit labor costs rose at a 0.3 percent rate in the third quarter, after declining at a 0.5 percent rate. Compensation per hour rose at a 2.3 percent rate, and hourly compensation was up 3.3 percent from a year earlier, the fastest pace since the fourth quarter of 2012.
The Employment Cost Index, the broadest measure of labor costs, rose 0.7 percent in the third quarter, the same pace as the second quarter. Economists had expected a smaller rise in both quarters. Wages and salaries—which make up 70 percent of employment costs—increased 0.8 percent in the third quarter, the largest increase since the second quarter of 2008.
"The year-over-year trends are gradually moving in the direction the Fed wants," said LaVorgna. "They want higher compensation and they want higher wage costs before they can move on rates."
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LaVorgna said the pickup is still well below where the Fed would come off the sidelines. "We've seen a jump. We need to see another quarter of acceleration. We haven't seen a lot of other evidence of wage pressure," he said. "We want to keep watching. When we hit 6 percent unemployment rate that's the highest we typically are at when we start to see wage pressures."
Amherst Pierpont Securities chief economist Stephen Stanley said while there's anecdotal evidence of rising wages, there hasn't been convincing proof in the aggregate data. "Hourly compensation figures in the productivity report and average hourly earnings have remained benign. I am highly confident that faster wage gains are coming, but it may take a few more months for them to show up more clearly in the broad data," he wrote, adding the flat September wage growth means the October gain would have to be very large to get markets excited. "More realistically, this story is likely to play out mostly in 2015."
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Susan Woodward, Intuit financial economist and founder of Sand Hill Econometrics, said rising wages are showing up in Intuit's survey of small businesses, but wages aren't rising across the board.
"The group that has done the best is professional services—lawyers and accountants," she said. Intuit expects small businesses, employing fewer than 20 workers, added 15,000 payrolls in October, the second highest since June's 24,000.
She said jobs growth is moving along, and wages are picking up slightly with lower-end workers basically seeing flat wage growth. Woodward said Intuit's data shows small-business revenues are up 27 percent over the last five years, with professional services business revenues up 37 percent. Health-care revenues were up just 11 percent while construction is up 30 percent and real estate services are up 24 percent.
Economist say the market may be fixated on wage pressures too soon since the labor market is not improving in a consistent way.
Zandi said there are wage pressures in some fields where there is a need for workers. "It's most evident in the middle of the country. You can draw a line from North Dakota to Texas. There is a lot of growth there. Certainly, in the trucking industry there's a shortage there. Certainly manufacturing, there's a shortage there," he said.