Today's Labor Cost/Inflation Data Argue Against a Fed Hike

Today's releases of data on Labor Costs and Price Inflation argue against a Fed hike:

1.  The Q1 Employment Cost Index shows labor costs are well contained -- despite increases in the minimum wage in a number of states.

      a.  The ECI rose 0.6% q/q, in line with trend.  The y/y fell to 1.9% from 2.0%, putting it at the lowest pace in over a year.

      b.  Lower commissions accounted for some of the subdued labor costs, but even excluding incentive-paid occupations the ECI rose an in-range 2.1%.

      c.   Note that it is not surprising that minimum wage hikes did not impact the ECI.  This has been the case in the past and reflects the fact that only a very small percentage of the labor force gets the minimum wage.

2.  The March Core PCE Deflator rose a modest 0.1% m/m (0.05% unrounded).  Importantly, the y/y slipped to 1.6% from 1.7%, putting it further away from the Fed's 2.0% target.

Real Consumption was flattish in March (+0.04% m/m).  Nevertheless, it stands 0.5% (annualized) above the Q116 average.  This is not a bad take-off point for Q216 Real Consumption, and a 2.0% (q/q, annualized) pace cannot be ruled out.