US wages rose less than expected in the fourth quarter as the labor shortage charged into 2022

• The Employment Cost Index rose 1% in the fourth quarter, missing the 1.2% estimate.
• The print marks a slowdown from the third quarter's historic 1.3% surge.

Wages in the US boomed yet again through the fourth quarter – just not as much as expected – as the labor market remained unusually tight and businesses clamored over a limited pool of workers.

The Employment Cost Index – a popular measure of nationwide wage growth – rose 1.0% in the final three months of 2021, the Bureau of Labor Statistics announced Friday morning. That came in below the median forecast of 1.2% growth from economists surveyed by Bloomberg and marked a deceleration from the prior quarter's 1.3% jump.

The print still shows wages continuing to shoot higher at an extraordinary pace as firms scrambled to rehire. The 1.3% gain in the third quarter marked the strongest wage growth in data going back to 2001, and the fourth-quarter reading is still much higher than levels seen before the pandemic.

Fourth-quarter wage gains were largest for retail workers, with the group enjoying a 2.6% jump in pay. Workers in the trade, transportation, and utilities sector saw wages rise 1.9%, as did those service occupations.

Compensation broadly declined in the financial industry, with the credit intermediation sector suffering the largest quarterly drop of 2%.

The headline ECI measure also grew 4% over the past year, marking the biggest annual ECI gain in at least two decades. Factors including virus fears, childcare costs, and skills gaps left many companies unable to rehire as the country started to reopen in early 2021. The phenomenon quickly came to be known as a labor shortage, and firms started hiking wages at a historic pace in the first quarter in hopes of attracting workers faster. The trend has won rare bipartisan backing, with lawmakers on both sides of the aisle cheering the leap in worker power.

Several signs point to the labor shortage lasting well into 2022. Job openings totaled 10.6 million in November, down slightly from the prior month's count but still well above the pre-pandemic average. The ratio of unemployed-people-per-job-opening held flat at a record-low 0.7, indicating there remained far more jobs listings than workers to fill them.

Pandemic-era quitting intensified as well. A record 4.5 million workers walked out of their jobs in November, marking the fifth consecutive month that more than 4 million people quit. The wave of quits, also known as the "Great Resignation," has also hindered companies' attempts to rehire.

Recent jobs reports reflect that slowdown. The US added just 199,000 nonfarm payrolls in December, making the last month of the year the weakest for job creation. The count fell well below the median estimate for 450,000 new jobs and showed payroll growth slowing for a second straight month.

In the inflation vs wages fight, inflation is winning

While pay growth is already weakening, inflation was still on the rise at the end of the fourth quarter. Prices for common goods rose 7% in the year through December, according to the Consumer Price Index, accelerating from the prior month's pace of 6.8% to the fastest rate since 1982. The slowdown in wage growth leaves workers even less equipped to deal with higher prices.

Most already aren't faring well. Only leisure and hospitality workers saw wage growth outpace inflation through 2021, according to BLS data. All other sectors ended the year with weaker buying power on average, with some even seeing their real wages drop by more than 3%.

Other data out Friday confirmed inflation remained red-hot into 2022. The Personal Consumption Expenditures price index rose 5.8% year-over-year in December, also marking the highest inflation since 1982. The core PCE index – which strips out volatile food and energy prices – rose 4.9% year-over-year, the highest rate since 1983 and accelerating from the prior month's 4.7% pace.

With prices still ripping higher, the slowdown in wage gains could put more pressure on workers' wallets through 2022.