The U.S. Employment Cost Index came in more or less in line with expectations today.

The ECI rose 1% in the third quarter. This pushed year-over-year wage growth to 4.1% from 3.9% in the previous quarter. As BMO Nesbitt Burns notes, “Even with the moderate rise, the trend in ECI is still slightly below last year’s average 4.3% increase.”

“While the third quarter advance was a tick above the consensus, it’s hard to see markets getting concerned about wage inflation at this point, especially given the signs of unexpectedly weak demand for longer-lived goods relayed by the bleak durable goods report for September, also released this morning,” says CIBC World Markets.

But despite the lack of excitement in the wage numbers, BMO notes, “The big story in the latest quarterly gain was an outsized 1.6% run-up in benefit costs, which lifted the year-over-year pace back above 5% from 4.5% in the prior quarter. Soaring health costs have been a major factor in the upward swing in benefits in the past two years, and no real moderation is expected in the near term, even with recent efforts by employers to restrain medical expenses.”

“It’s still early to expect much effect from the weaker labor market, but the rising crescendo of layoff announcements should result in a further notable cooling in wage pressures in the quarters to come, as workers’ concerns increasingly turn to job security. Leaner year-end bonuses in fields like financial services and retailing will take a large bite out of the fourth quarter compensation numbers, also helping to slow the year-on-year trend,” says CIBC.

BMO notes that the continued upward push in initial jobless claims suggests that employment conditions are weakening rapidly, and this will soon put strong downward pressure on wages.

“The relatively high reading on the ECI is not an inflation threat, but is instead another source of pressure on profits. Rising wages can not be passed on in the form of higher prices in the current weak economic backdrop. The ECI is poised to decelerate given the darkening employment picture,” BMO concludes.