American workers saw their inflation-adjusted pay increase for the fifth consecutive quarter, providing continued relief on household budgets even as the pace of compensation growth moderates from pandemic-era peaks.
Total compensation for private-sector workers rose 3.5 percent in the 12 months ending in September, while inflation increased roughly 3 percent over the same period, according to the Employment Cost Index released Wednesday by the Bureau of Labor Statistics. That left workers with real purchasing power gains of 0.6 percent for wages and salaries and 0.5 percent for total compensation including benefits.
The quarterly data showed wages and salaries increased 0.8 percent in the three months ending September 30, matching the pace of total compensation growth. Benefits, which include health insurance and retirement contributions, also rose 0.8 percent during the quarter.
The 3.5 percent annual increase represents a significant moderation from peaks above five percent in late 2022. However, workers are in a stronger position now than during that earlier period, when inflation was running at 6 percent or higher, eroding purchasing power despite the faster nominal wage growth. The current pace marks the slowest compensation growth since early 2021, but it’s also one of the few periods since the pandemic where paychecks have consistently outpaced price increases.
The Employment Cost Index, favored by Federal Reserve policymakers because it controls for shifts in the types of jobs people hold, provides a clearer picture of pure wage pressure and labor market health than other measures. Unlike average hourly earnings data, the ECI isolates how much employers are raising pay for the same positions rather than reflecting changes in employment mix.
Regional Variation in Pay Gains
The data revealed substantial geographic differences in compensation growth. Workers in the Miami metro area saw 12-month pay increases of 5.7 percent, while those in Seattle received 4.7 percent more. By contrast, the Washington, D.C. area recorded just 2.2 percent compensation growth, the slowest among major metropolitan regions tracked.
Manufacturing workers saw wages rise 3.6 percent annually, while education and health services workers experienced 3.9 percent growth. Union workers continued to see faster pay gains than non-union employees, with increases of 4.5 percent versus 3.5 percent respectively.
The report’s release was delayed more than five weeks due to the federal government shutdown that lasted from late September through mid-November. The Bureau of Labor Statistics noted that data collection was interrupted before the shutdown began, and survey response rates decreased for the September quarter.
“After funding had been restored, any data self-reported by establishments during the shutdown were reviewed and included; however, survey response rates decreased in September,” the agency stated in the report.
The next Employment Cost Index, originally scheduled for December, has been rescheduled to February 10, 2026.
Implications for Consumers and Monetary Policy
The continued real wage gains suggest American households have maintained some ability to absorb price increases without cutting back on spending. Consumer expenditures have remained resilient through 2025 despite elevated prices for housing, food, and other essentials compared to pre-pandemic levels.
For the Federal Reserve, the moderating pace of compensation growth alongside positive but slower inflation readings may support continued interest rate cuts as policymakers seek to balance employment and price stability objectives.
The moderation in wage growth reflects a jobs market that has cooled considerably from the red-hot conditions of 2021-2022, when employers faced severe worker shortages. Hiring has slowed and job openings have declined, reducing workers’ leverage in salary negotiations even as layoffs remain relatively low by historical standards.
Still, the fact that paychecks continue growing faster than prices means the average worker can buy slightly more with their paycheck than they could a year ago, providing at least some cushion against ongoing affordability concerns that have dominated household financial anxiety since inflation surged in 2021.
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