Long Term Perspective
Federal Reserve officials closely monitor the employment cost index, which measures total compensation costs. Compensation includes wages & salaries as well as benefits. Compensation costs moderated sharply in 2002, then again in the first half of 2005 after remaining stable in the two previous years. Both wages & salaries and benefits have been rising rapidly in 2006.

Short Term Perspective
The employment cost index rose 3.3 percent in the third quarter of 2006 versus year ago levels while wages and salaries rose 3.2 percent. Tight labor markets have resulted in faster gains in wages and salaries in 2006. Accelerating compensation costs have been a concern for Fed officials during 2006 and will continue to play a role in determining whether or not the Fed will ease the funds rate target by mid-2007 as many are forecasting.