U.S. Wage-Benefit Growth Outpaces Inflation, Gap Shrinks; Fed Prioritizes Jobs

This analysis is based on the MarketWatch report [1] published on December 10, 2025, which details the latest ECI data and Fed policy focus. Key findings from internal market data [0] include:

• ECI compensation growth reached 3.5% YoY, the lowest rate since 2021. Real (inflation-adjusted) compensation growth slowed to 0.5% YoY from 0.9% in Q2 2025, indicating a shrinking gap between wage growth and inflation.
• The job market is weakening, as reflected in ADP data showing job-stayers’ pay growth declining to 4.4% YoY (from 4.5%) and job-changers’ pay growth falling to 6.3% YoY (from 6.7%).
• The Fed’s priority has shifted from inflation to supporting the labor market, with widespread expectations of a 0.25% rate cut today. Initial market reaction shows slightly lower stock futures: Dow futures down 30 points, S&P 500 futures down 0.1%, and Nasdaq futures down 0.2% ahead of the Fed’s announcement.

1. Easing inflationary pressures but consumer spending headwinds
   : The slowing real wage growth gap suggests reduced inflationary risks but also raises concerns about future consumer spending— a critical driver of U.S. GDP [0].
2. Fed policy shift implications
   : The expected rate cut reflects confidence in tamer inflation but anxiety about labor market weakness. Rate cuts typically benefit interest-rate sensitive sectors like real estate and utilities [0].
3. Labor market trends
   : Declining wage growth for both job-stayers and job-changers indicates reduced labor market leverage, which could further soften consumer demand over time.

• Risks
  : A continued weakening job market and slowing wage growth could pressure corporate earnings in consumer-facing sectors [0].
• Opportunities
  : The Fed’s rate cut could provide support to rate-sensitive sectors, potentially driving performance in real estate and utilities [0].

Key data points from the analysis include:

• ECI compensation growth: 3.5% YoY (real growth: 0.5% YoY)
• Job-stayers’ pay growth: 4.4% YoY; job-changers’ pay growth: 6.3% YoY
• Expected Fed rate cut: 0.25%
• Initial market reaction: Slightly lower stock futures

No specific investment recommendations are provided. This summary is for informational purposes only to support decision-making.