Question: You've never covered the Employment Cost Index. What does it tell us?

L. Stein

Answer:

Dear L. Stein,

You're right -- it is an interesting, but often overlooked economic statistic.

The Definition

The Employment Cost Index (ECI) is a quarterly report put out by the U.S. Department of Labor giving changes in employee compensation in the form of wages, salaries and changes in benefits. It is calculated on a fixed basket of occupations and measures the change in the cost of labor, free from the influence of employment shifts among occupations and industries.

The Wages & Salaries Component

This is defined as the hourly straight-time wage rate or, for workers not paid on an hourly basis, straight-time earnings divided by the corresponding hours. Straight-time wage and salary rates are total earnings before payroll deductions.

It excludes:

• Premium pay for overtime
• Pay for work on weekends and holidays
• Shift differentials
• Lump-sum payments in lieu of wage increases.

It includes:

• Production bonuses
• Incentive earnings
• Commission payments
• Cost-of-living adjustments.

The Benefits Component

This part of the equation consists of:

• Paid leave vacations
• Holidays
• Sick leave
• Insurance benefits (life, health, disability)
• Retirement & Savings benefits
• Medicare
• Workers' compensation
• Supplemental employment plans.

What The ECI Tells Us

The key thing we can derive from this quarterly statistic is an indication of inflation -- whether inflation appears to be increasing, decreasing or holding even. In that respect you can use it to determine what mixture of investments you wish to hold in your portfolio -- and when to shift your holdings among corporate and municipal bonds, U.S. Treasuries, bank CDs, stocks, Savings Bonds, precious metals, art & antiques and real estate.

For More Information

• Ongoing information on the ECI is posted at: www.bls.gov

Two related columns you might wish to read are:

• Government Statistics, click HERE
• I-Bonds, click HERE