INDICATOR: Second Quarter Employment Cost Index

KEY DATA: Compensation: +0.2%; Private Sector: 0%; Private Sector Wages and Salaries: +0.2%; Private Sector Benefits: -0.2%

IN A NUTSHELL: “The labor market may be tightening but that has yet to help generate greater gains in compensation.”

WHAT IT MEANS: As the unemployment rate approaches the bottom range of the Fed’s estimate for full employment, you would expect to see wages start increasing faster.

When a number of large companies announce that in the beginning of April they will raise their minimum wage, you would expect to see wage and salary growth accelerate. When job openings hit record highs and jobless claims reach record lows, you would expect to see businesses doing whatever they could to retain workers.

Well, if you expected any or all of those things, you would have been wrong.

Apparently, the labor market crashed in the spring as employment costs rose at the slowest pace since the Bureau of Labor Statistics started producing these numbers thirty-three years ago.

Yes, even in the depths of the Great Recession, compensation didn’t increase more slowly. If you are guessing that I think the report may have been a little off, you would be correct.

Enough for the sarcasm, or maybe the attempt to put the data into perspective. So, what were the numbers?

Basically, private sector firms not only held the line on compensation, but also managed to roll back benefits.

The private sector wage increase was the smallest on record while the decline in benefits was only the second time that has happened. The public sector increases were generally in line with what we had been seeing for a while, so the slowdown in worker income gains came entirely from businesses using their market power to keep workers in line. Okay, there’s the sarcasm again. My apologies.

MARKETS AND FED POLICY IMPLICATIONS: I really like the Employment Cost Index report as it takes into account a much wider range of data than the hourly wage number we get in the employment report.

That is why I am so surprised that with all indications that firms are doing what they can to hang onto workers and attract new ones, we would see the weakest compensation gains in over 30 years.

Part of that may have been some outsized bonuses in the first quarter, but that also is not clear from the personal income numbers.

So, I am at a loss to explain what happened.

Will the Fed members worry about this? I am not sure.

Sometimes data are just strange and this is one of those cases. But a stronger increase in compensation would have made it a lot easier to defend a rate hike in September.

The weak rise gives ammunition to those who argue that the FOMC can wait a little longer before taking action.