WASHINGTON — American workers' pay rose 3.1% in the year through September 2026, the slowest annual pace since early 2021, while inflation-adjusted wages fell 0.6% over the same period, according to the Bureau of Labor Statistics (BLS). The figures, released on Friday, October 30, 2026, mean that the average raise over the past year bought slightly less than it did a year earlier — the second straight quarter in which pay has trailed prices.
The data come from the Employment Cost Index (ECI), the Labor Department's broadest measure of what employers pay for labour. The index tracks the cost of employing the same set of jobs over time, so it is not distorted when large numbers of higher- or lower-paid workers join or leave the workforce. For that reason, policymakers at the Federal Reserve watch it closely as a gauge of labour-market slack and a predictor of core inflation.
What Happened
Total compensation costs for civilian workers rose 0.8% in the third quarter of 2026 on a seasonally adjusted basis, easing from 0.9% in the second quarter, the BLS reported. Wages and salaries rose 0.7% over the quarter, while benefit costs rose 0.9%. Over the 12 months through September, total compensation increased 3.4% — unchanged from the annual pace reported for the year through June — with wages and salaries up 3.1% and benefits up 3.9%.
The annual wage figure is the story. At 3.1%, wage growth slowed from 3.2% in the year through June and from 3.5% for civilian workers in the year through September 2025. For private-industry workers, wages rose 3.1% over the year, down from 3.6% a year earlier. State and local government workers saw wages rise 3.2% over the year, down from 3.5% a year earlier.
At the same time, the BLS calculated that inflation-adjusted wages and salaries for private-industry workers fell 0.6% over the 12 months through September, after a 0.3% decline in the year through June. For state and local government workers, inflation-adjusted wages fell 0.5%. In other words, even as nominal pay continued to rise, the purchasing power of the average paycheck slipped — and slipped faster than in the previous quarter.
Reuters, reporting on the release, said the moderate rise in labour costs amid slowing wage growth suggested the labour market was unlikely to be an inflation risk — a reading that matters greatly for the Federal Reserve, which held interest rates steady at its October meeting while signalling that further tightening remained possible.
Illustration: A worker holds a paycheck while prices for groceries and everyday essentials climb around them.
Background
The Employment Cost Index is published quarterly and is regarded as one of the cleanest reads on pay in the United States. Unlike average hourly earnings, which can move simply because the mix of jobs changes, the ECI follows a fixed basket of occupations and industries. When it slows, it usually means employers are genuinely offering smaller raises for the same work — not merely hiring more junior staff.
The latest release covers the quarter ending in September 2026, so it describes pay earned through September rather than a change that occurred on the publication date itself. That timing matters: the data capture a labour market that was already cooling before the final, turbulent weeks of October, when technology shares sold off sharply and energy prices stayed elevated.
The inflation backdrop is what turns a cooling wage number into a household squeeze. Consumer prices rose 3.7% annually in September, according to Labor Department consumer price data, with gasoline up 34.2% over the year and accounting for about half of September's monthly price increase. The Federal Reserve's preferred inflation gauge, the personal consumption expenditures (PCE) price index, rose 3.6% year on year in September, up from 3.4% in August, while core PCE inflation, which strips out food and energy, edged up to 3.1% from 3.0%.
Energy prices have been a central driver. The war with Iran, which began in February 2026, and the disruption to energy shipping that followed have kept crude oil prices in triple digits for much of the year, and Reuters' market columnists noted in their October 30 weekly review that policymakers now fear energy price shocks will spur wider price rises across the major economies. That fear is a key reason central banks have stayed hawkish even as wage growth cools.
The Numbers in Detail
Private-industry compensation rose 0.8% in the third quarter, with private wages and salaries up 0.8% and benefits up 0.9%. Over 12 months, private compensation rose 3.4%, wages 3.1% and benefits 3.9% — the same pattern as the civilian total, but with a slightly stronger quarterly wage gain than the civilian 0.7%.
Benefit costs are now the faster-growing half of the pay packet. At 3.9% over the year, up from 3.8% in the year through June, benefits have outpaced wage growth for four straight quarters, according to analysis cited in coverage of the release. Health benefit costs have been a major contributor: coverage citing TheStreet and Haver Analytics put health benefit costs for private employers at about 6.4% over the year, up from 6.0% in June. That means a growing share of what employers spend on workers is going to insurance and other non-cash benefits rather than to take-home pay.
State and local government compensation rose 0.6% in the quarter and 3.5% over the year, with wages up 0.6% for the quarter and 3.2% over 12 months — a slightly slower pace than the private sector on both measures.
The gains were uneven across industries. Among private-industry groups, utilities led with wage growth of 4.2% over the year. Construction, extraction, farming, fishing and forestry occupations, hospitals, and real estate and leasing each rose 3.8%, and health care and social assistance rose 3.7%. Retail trade wages rose 3.4%, slightly faster than the national figure. At the bottom of the table, sales and related occupations rose just 1.8% — 2.1% once incentive-paid jobs, whose commissions and bonuses swing with sales, are stripped out — and accommodation and food service rose 2.1%. The gap between the best- and worst-paid groups is now more than two percentage points.
Illustration: A rising chart stands over factory, office and construction workplaces, showing uneven pay growth across industries.
The household picture beyond the ECI was also soft. A separate Commerce Department report released on October 29 showed personal income rising only 0.2% in September, while real disposable personal income fell 0.3% and the personal saving rate dropped to 3.8%, its lowest since October 2022. Consumer spending rose 0.5% in nominal terms in September but by less than 0.1% after adjusting for inflation — households spent more dollars to buy barely more goods and services.
Yet the wider economy was still growing. The Bureau of Economic Analysis' advance estimate put United States real GDP growth at 3.4% annualised in the third quarter, up from 2.2% in the second quarter and above the 3.2% consensus forecast, driven by consumer spending, which rose 3.8%, and by a surge in AI-related capital expenditure. The combination — strong growth, elevated inflation, cooling wages — is the central puzzle facing policymakers as November begins.
Why It Matters
For households, the ECI release quantifies a squeeze that opinion polls and campaign debates have already made the central theme of the November 3 midterm elections. When wages rise 3.1% and consumer prices rise 3.7%, the typical worker is modestly worse off in real terms, even in an economy growing at 3.4%. The pain is not evenly spread: workers in utilities, construction and health care kept pace better than workers in sales, restaurants and hotels, where raises of around 2% lagged prices by a wide margin.
For the Federal Reserve, the release cuts in two directions. On one hand, slowing wage growth supports the argument that labour costs are not themselves driving inflation higher — the Reuters reading that the labour market is unlikely to be an inflation risk. On the other, headline and core PCE inflation both ticked higher in September, and the Fed's October 28 decision to hold its target range at 3.75% to 4.00% came on a 10–2 vote, with two members preferring another increase immediately. The Fed had raised rates to that range on September 16, its first increase since 2023, and market commentary after the October meeting put the odds of a further hike in December sharply higher.
For employers, the benefit-cost surge is a warning of its own. When benefits grow faster than wages for a full year, firms face rising total labour costs even while workers feel poorer — a combination that can squeeze margins without easing hiring difficulties. Richmond Federal Reserve President Thomas Barkin noted on October 30 that businesses in his district faced mounting costs for diesel, semiconductors and skilled labour and appeared willing to pass them through to customers, a dynamic that could keep services inflation elevated into the autumn.
Illustration: A central bank building stands beside a large interest-rate dial as policymakers weigh inflation against growth.
What Happens Next
November is packed with data that will test whether the wage slowdown continues or stabilises. The United States midterm elections take place on November 3, with the cost of living a central campaign theme. The September Job Openings and Labor Turnover Survey is due the same day, followed by preliminary third-quarter productivity and costs data on November 5 and the October Employment Situation report — payrolls, unemployment, participation and wages — on November 6. The October consumer price report is scheduled for November 10.
Those releases will show whether the energy-driven price surge of September carried into October, and whether hiring held up as wage growth cooled. The ISM manufacturing and services reports, due November 2 and 4, will give an early read on business activity, with their prices-paid and employment indices watched closely as leading indicators for both inflation and the jobs report.
The next Employment Cost Index report, covering the quarter ending in December 2026, is scheduled for January 29, 2027. Until then, the September figures stand as the official benchmark: pay growth at its slowest in more than five years, benefits climbing faster than wages, and the average American paycheck buying slightly less than it did a year ago. Whether November's data soften that picture or sharpen it will shape both the Federal Reserve's December decision and the political debate that follows the midterms.
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FAQ
What is the Employment Cost Index?
The Employment Cost Index is the Bureau of Labor Statistics' quarterly measure of what employers pay for labour, tracking wages, salaries and benefits for the same set of jobs over time so that changes in the mix of workers do not distort the result.
How fast did US wages grow in the year through September 2026?
Wages and salaries rose 3.1% over the 12 months through September 2026, the slowest annual pace since early 2021, down from 3.2% in the year through June and 3.6% for private-industry workers a year earlier.
Why did workers feel worse off even though pay rose?
Because prices rose faster than pay: consumer prices were up 3.7% annually in September and the PCE price index was up 3.6%, so inflation-adjusted private-sector wages fell 0.6% over the year, the second straight quarterly decline in real terms.
Which workers saw the biggest and smallest raises?
Utilities led with 4.2% wage growth over the year, followed by construction-related occupations, hospitals and real estate at 3.8% each, while sales occupations rose only 1.8% and accommodation and food service 2.1%.
What does the report mean for interest rates?
Slowing wage growth suggests labour costs are not themselves fuelling inflation, but with PCE inflation ticking up to 3.6% and the Fed holding rates at 3.75% to 4.00% on a 10–2 vote in October, markets are watching November's jobs and inflation data closely ahead of the Fed's December decision.
Sources
- U.S. Bureau of Labor Statistics, "Employment Cost Index — September 2026," news release, October 30, 2026.
- Reuters (via Thomson Reuters), "Slower wage growth curbs US labor costs in third quarter," October 30, 2026.
- U.S. Bureau of Economic Analysis, "Personal Income and Outlays, September 2026," October 29, 2026.
- U.S. Bureau of Labor Statistics, consumer price data for September 2026, reported October 2026.
- Reuters Open Interest, "Morning Bid: Cash burnout" and "The hawkish pause, Lula's market meltdown, and the Anthropic IPO bombshell: The financial week in five charts," October 30, 2026.
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