US labor costs growth cools in fourth quarter

Core Insights - Growth in U.S. labor costs unexpectedly slowed in Q4, marking the smallest annual increase in 4.5 years due to softening demand for labor [1][2] - The Employment Cost Index (ECI) rose 0.7% in Q4, lower than the 0.8% increase forecasted by economists [1][2] - Labor costs increased by 3.4% in the 12 months through December, the smallest gain since Q2 2021, down from a 3.5% increase in the year through September [2] Labor Market Dynamics - A lackluster labor market is restraining wage growth, with the ratio of job openings to unemployed persons dropping to 0.87 in December from 0.89 in November and about 1.08 a year ago [3] - Despite diminished wage pressures, import tariffs have contributed to elevated goods prices, keeping inflation high [3] Federal Reserve Outlook - Economists anticipate that the Federal Reserve will maintain steady interest rates through the first half of the year, with the current benchmark overnight interest rate set between 3.50% and 3.75% [4] Wage Trends - Wages and salaries, which constitute the majority of labor costs, rose 0.7% in Q4, following a 0.8% increase in Q3, and advanced 3.3% on an annual basis [5] - When adjusted for inflation, overall wages increased by 0.7% in the 12 months through December, compared to a 0.6% rise in Q3 [5]