What is an Employment Cost Index?
The employment cost index, or ECI, is a quarterly report compiled by the Bureau of Labor Statistics within the U.S. Department of Labor that offers wage and benefit information and provides a leading indicator of potential inflation.
How Does an Employment Cost Index Work?
Although overshadowed in the press by the more widely watched CPI, the ECI provides an early indicator of inflation. It is compiled based on payroll reports from the last month in each quarter and covers numerous industries and worker classifications, as well as a break-down of union and non-union wages. The ECI collects samples from across all these industries and categories, and reports on the changes from the previous quarter to highlight developing trends.
Why Does an Employment Cost Index Matter?
The U.S. Federal Reserve analyzes the ECI, in addition to other reports, in order to set monetary policy for the United States. Analysts use the ECI primarily to study labor costs and its inflationary effects within the United States.