1. Employment Cost Index (ECI) Dong Tommy Kim Hien Misa Nguyen Nyle Rock

2. Employment Cost Index (ECI) Published by: Bureau of Labor Statistics (BLS) Published by: Bureau of Labor Statistics (BLS) Frequency: quarterly Frequency: quarterly Period Covered: prior quarter Period Covered: prior quarter Market significance: moderate Market significance: moderate Comprehensive measure of labor cost. But published only quarterly. Comprehensive measure of labor cost. But published only quarterly. Website: http://www.bls.gov/ect/#overview Website: http://www.bls.gov/ect/#overview http://www.bls.gov/ect/#overview

3. What is ECI? A measure of the change in the cost of labor, free from the influence of employment shifts among occupations and industries. A measure of the change in the cost of labor, free from the influence of employment shifts among occupations and industries. It is the most comprehensive measure of labor costs and their growth rate. It is the most comprehensive measure of labor costs and their growth rate. It measures changes in labor costs for money wages and salaries and noncash fringe benefits in nonfarm private industry and state and local governments for workers at all levels of responsibility. It measures changes in labor costs for money wages and salaries and noncash fringe benefits in nonfarm private industry and state and local governments for workers at all levels of responsibility.

4. What is in the ECI report? Shows changes in wages and salaries and benefit costs, as well as changes in total compensation Shows changes in wages and salaries and benefit costs, as well as changes in total compensation Presents data as a total for all workers and separately for private industry and for state and local government workers Presents data as a total for all workers and separately for private industry and for state and local government workers Reports changes by industry, occupational group, union and nonunion status, census region and division, and metropolitan/nonmetropolitan status Reports changes by industry, occupational group, union and nonunion status, census region and division, and metropolitan/nonmetropolitan status

5. What is in the ECI report? Provides seasonally adjusted and unadjusted data Provides seasonally adjusted and unadjusted data Presents historical data on changes in labor costs Presents historical data on changes in labor costs Uses fixed weights to control for shifts among occupations and industries Uses fixed weights to control for shifts among occupations and industries

6. Why is ECI important? “Inflation rate of the private-sector ECI has roughly parralled the overall inflation rate, measured by the GDP price index, since 1980” (Business Economics, July 1999). “Inflation rate of the private-sector ECI has roughly parralled the overall inflation rate, measured by the GDP price index, since 1980” (Business Economics, July 1999). Unlike the Average Hourly Earnings measure of wage inflation, the ECI is not affected by shifts in the composition of employment between high-wage and low-wage industries or between high- and low-wage occupations within industries. Unlike the Average Hourly Earnings measure of wage inflation, the ECI is not affected by shifts in the composition of employment between high-wage and low-wage industries or between high- and low-wage occupations within industries.

7. Why is ECI important? Data uses in private and public sectors: Data uses in private and public sectors: For both sectors: For both sectors: Evaluate benefit packages; Evaluate benefit packages; Analyze contract settlements; Analyze contract settlements; Private sector: Private sector: Aid collective bargaining negotiations; Aid collective bargaining negotiations; Guide decisions in business or plant location; Guide decisions in business or plant location; Assist in wage and salary administration; Assist in wage and salary administration; Adjust wages in long-term contracts. Adjust wages in long-term contracts. Public sector: Public sector: Formulate and assess public policy; Formulate and assess public policy; Aid collective bargaining negotiations; Aid collective bargaining negotiations; Index Medicare payments; Index Medicare payments; Formulate monetary policy. Formulate monetary policy.

8. Keys to Interpreting the Data Since bonuses & commissions are included in data, there needs to be caution when interpreting Total Compensation. Since bonuses & commissions are included in data, there needs to be caution when interpreting Total Compensation. Rebased in Dec 2005 to 100. Rebased in Dec 2005 to 100. Sample errors exist since the data have been derived from sample surveys. Sample errors exist since the data have been derived from sample surveys.

9. ECI – by Region ECI – by Region Over-the-year percent change in the ECI for total compensation in the regions, private industry workers, 2002-2007

10. Latest Release - March 2007 Total compensation costs for civilian workers increased 0.8 percent from December 2006 to March 2007, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This was about the same as the 0.9 percent increase for the September to December 2006 period. Total compensation costs for civilian workers increased 0.8 percent from December 2006 to March 2007, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This was about the same as the 0.9 percent increase for the September to December 2006 period. Wages and salaries rose 1.1 percent for the three-month period, compared with 0.7 percent for the previous period. Wages and salaries rose 1.1 percent for the three-month period, compared with 0.7 percent for the previous period.

11. Latest Release - March 2007 Increases in wages and salaries accounted for 84 percent of the rise in compensation costs for civilian workers from December 2006 to March 2007, not seasonally adjusted. Increases in wages and salaries accounted for 84 percent of the rise in compensation costs for civilian workers from December 2006 to March 2007, not seasonally adjusted. Among private industry workers, wages and salaries comprised 96 percent of the compensation gain. Among private industry workers, wages and salaries comprised 96 percent of the compensation gain.

12. Latest Release - March 2007 In state and local government, wages and salaries accounted for 40 percent of the change in compensation. In state and local government, wages and salaries accounted for 40 percent of the change in compensation. In state and local government, benefit increases were due primarily to increases in defined benefits and health benefits. In state and local government, benefit increases were due primarily to increases in defined benefits and health benefits.

13. Latest Release - March 2007 Quarterly changes, seasonally adjusted Quarterly changes, seasonally adjusted For private industry, compensation costs rose 0.6 percent, compared to 0.8 percent for the prior quarter, while state and local government increased 1.3 percent, compared to 1.0 percent for the quarter ended December 2006. For private industry, compensation costs rose 0.6 percent, compared to 0.8 percent for the prior quarter, while state and local government increased 1.3 percent, compared to 1.0 percent for the quarter ended December 2006. For private industry workers, wages and salaries increased 1.1 percent, up from 0.8 percent. In state and local government, the increase was 0.9 percent, up from 0.8 percent in the prior quarter. For private industry workers, wages and salaries increased 1.1 percent, up from 0.8 percent. In state and local government, the increase was 0.9 percent, up from 0.8 percent in the prior quarter.

14. Historical Data

15. Wages & Salaries

16. Total Benefits

17. Total Compensation

20. How ECI affects the stock market A sustained increase in labor costs is bearish for the stock market. If wages and benefits climb faster than productivity, business costs swell, which then jeopardizes corporate profits. A sustained increase in labor costs is bearish for the stock market. If wages and benefits climb faster than productivity, business costs swell, which then jeopardizes corporate profits. Moreover, it can compel the Fed to act. How quickly this all unfolds depends on where the economy stands in the business cycle and how vulnerable it is to an outbreak of inflation. Moreover, it can compel the Fed to act. How quickly this all unfolds depends on where the economy stands in the business cycle and how vulnerable it is to an outbreak of inflation.

21. The U.S. employment cost index for the first quarter of 2007 rose 0.8% for overall compensation costs to civilian workers, with the wages and salaries component up 1.1% and benefits rising only 0.1%. The U.S. employment cost index for the first quarter of 2007 rose 0.8% for overall compensation costs to civilian workers, with the wages and salaries component up 1.1% and benefits rising only 0.1%. Economists' expectations had centered on a 1.0% increase in overall compensation costs. Economists' expectations had centered on a 1.0% increase in overall compensation costs. The civilian workers wages and salaries category rise was the largest since a 1.3% gain in the first quarter of 2001, while the benefits rise was the smallest since a similar 0.1% gain in the first quarter of 1999. The civilian workers wages and salaries category rise was the largest since a 1.3% gain in the first quarter of 2001, while the benefits rise was the smallest since a similar 0.1% gain in the first quarter of 1999. Data Analysis

22. "Employment costs still look fairly contained, which should provide Fed officials with some comfort. Wages and salaries, however, are still seeing some modest upward pressure given the tight labor market. The message is that we are not out of the woods yet in regard to inflation concerns” (Russell Price, H&R Financial Adivsors). "Employment costs still look fairly contained, which should provide Fed officials with some comfort. Wages and salaries, however, are still seeing some modest upward pressure given the tight labor market. The message is that we are not out of the woods yet in regard to inflation concerns” (Russell Price, H&R Financial Adivsors).

23. The ECI rose 0.8% in the first quarter on a 1.1% gain in wages and salaries due to still relatively tight labor markets. Benefits costs rose only 0.1% and were up 3.1% year/year, a deceleration from the 3.6% year/year gain in the fourth quarter. (Kevin Kastner, Market News International) The ECI rose 0.8% in the first quarter on a 1.1% gain in wages and salaries due to still relatively tight labor markets. Benefits costs rose only 0.1% and were up 3.1% year/year, a deceleration from the 3.6% year/year gain in the fourth quarter. (Kevin Kastner, Market News International) Data Analysis