The recent behavior of wages provides additional evidence pertaining to the degree of labor market slack. As shown in figure 3, increases in average hourly earnings, the employment cost index, and compensation per hour remain subdued, picking up only modestly of late. 6 Again, these data do not seem consistent with an overheated labor market.
Moreover, signs of overheating in the broader economy are also scarce. For example, capacity utilization in the manufacturing sector is well below its historical average. Most importantly, although core inflation is rising gradually from a low level, this increase mainly reflects the waning of the effects of earlier movements in the dollar, not upward pressure from resource utilization.