By
Derek Hamilton
06 March 2025
Wage growth is an important factor for the overall economic outlook, and it has been slowing for the past two years, which has implications for future investment decisions. Consumer spending, inflation, and corporate profits are all impacted by the direction of wages.
The Employment Cost Index, which is the preferred wage measure of the US Federal Reserve continues to indicate an environment of slower wage growth. When gauging prospects for wage growth, we prefer to examine the quits rate, which measures the number of people quitting their jobs each month as a percentage of total employment.
In the chart below, the declining trajectory of the quits rate suggests further deceleration in wage growth, which intuitively makes sense, because more people typically quit when the labor market is tight and they can find a higher-paying job elsewhere. As companies are faced with more unfilled positions, they raise wages to attract workers, which is generally not the case today.
While we expect wage growth to continue to fall, we believe the amount of improvement could be limited. As we have written in the past, severe changes to immigration policy could result in a tighter labor market, and if this were to occur, we would expect the trend in quits to reverse, ultimately pushing wage growth higher once again. We encourage all investors to stay apprised of these trends.
Wage growth and job quits
Sources: Macquarie, Macrobond, US Bureau of Labor Statistics (BLS). Wage growth is represented by the Employment Cost Index, which measures the change in the cost of labor. It adjusts for employment shifts between occupations and industries and is shown as a year-over-year percentage change. The quits rate is the number of quits during the entire month as a percentage of total employment and is shown as a three-month moving average.
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