Labor compensation costs in the United States rose at a 2.8% annualized rate during the third quarter of 2025, marking a significant deceleration from the 3.5% pace recorded in the second quarter. The slowdown reflects broad-based easing in labor market pressures, with declining job openings and reduced wage pressures across key sectors.
- Labor cost growth slowed to 2.8% annualized in Q3 2025, down from 3.5% in Q2
- Job openings declined to 8.1 million in September, the lowest level since early 2023
- Unemployment rate held at 4.2% while labor force participation rose to 62.5%
- Private-sector wage growth fell to 2.6% in Q3 from 3.3% in Q2
- Government sector compensation rose at a 3.1% annual rate
- Producer Price Index for employee compensation increased 3.0% year-over-year
Labor cost growth in the U.S. economy moderated to a 2.8% year-over-year increase in the third quarter of 2025, according to updated government data, down from 3.5% in the prior quarter. This decline reflects a broad-based weakening in labor market dynamics, including a steady drop in job openings and a narrowing of wage growth across industries such as manufacturing, retail, and professional services. The deceleration comes as the national job separation rate rose to 2.3% in September, up from 2.1% in June, indicating increased worker mobility and reduced job stability. Meanwhile, the unemployment rate remained steady at 4.2%, but the labor force participation rate edged up to 62.5%, suggesting more individuals are re-entering the workforce rather than driving wage pressures through scarcity. Sector-specific data shows the most pronounced slowdown in private-sector wage growth, which declined to 2.6% in Q3 from 3.3% in Q2. In contrast, government sector compensation rose at a slightly elevated 3.1% pace, reflecting ongoing public sector hiring and contract renewals. The Producer Price Index for employee compensation rose 3.0% annually, still above the Federal Reserve’s 2% target, but showing signs of stabilization. Market participants interpreted the data as a potential signal that inflationary pressures tied to wages may be abating, easing near-term pressure for further rate hikes. Financial markets responded with modest gains in Treasury yields and a slight rally in equities, particularly in sectors sensitive to interest rate changes such as utilities and real estate.