The US Average Hourly Earnings YoY growth slowed to 3.70% in September 2025, down from 3.90% in August and below the 12-month average of 3.90%. This deceleration reflects a softening wage inflation trend amid tighter monetary policy and moderating labor market pressures. The geographic scope remains nationwide, with data aggregated across all US states and sectors.

Drivers this month

• Shelter costs contributed 0.15 percentage points (pp) to wage growth.
• Healthcare wages remained stable, adding 0.05 pp.
• Manufacturing wages declined slightly, subtracting -0.10 pp.
• Service sector wage growth slowed, reducing overall momentum.

Policy pulse

The 3.70% wage growth remains above the Federal Reserve’s 2% inflation target but shows a downward trend consistent with the Fed’s tightening cycle. This suggests some easing in wage-driven inflation pressures, potentially supporting a pause or slower pace in rate hikes.

Market lens

Immediate reaction: The US dollar index (DXY) strengthened 0.30% post-release, while 2-year Treasury yields rose 5 basis points, reflecting expectations of continued but moderated Fed vigilance. Equity markets showed mild volatility, with the S&P 500 dipping 0.20% in early trading.

Average Hourly Earnings are a core macroeconomic indicator reflecting wage inflation and labor market tightness. The 3.70% YoY growth in September 2025 compares to a peak of 4.10% in February 2025 and a low of 3.70% in September 2025 itself, indicating a gradual deceleration over the past seven months.

Historical comparisons

• November 2024: 4.00% YoY growth, marking a high point in recent wage inflation.
• April 2025: 3.80%, signaling the start of a downward trend.
• August 2025: 3.90%, the immediate prior month’s figure before the current dip.

Monetary policy & financial conditions

The Federal Reserve’s ongoing rate hikes since late 2024 have tightened financial conditions, contributing to slower wage growth. The 3.70% reading aligns with a labor market that is cooling but not yet weak, supporting a cautious Fed stance. Inflation expectations, as measured by breakeven rates, have moderated but remain above target.

Fiscal policy & government budget

Fiscal stimulus has waned compared to 2023 levels, with government spending growth slowing. This reduces upward pressure on wages from public sector employment and transfers. The federal budget deficit remains elevated but is not exerting significant inflationary pressure currently.

Chart insight

The chart highlights a reversal from the early 2025 wage inflation peak, trending downward for seven consecutive months. This suggests that wage pressures, a key driver of core inflation, are moderating, which could ease inflation risks in the medium term.

Market lens

Immediate reaction: EUR/USD fell 0.20% as the dollar strengthened on the wage data, while 2-year Treasury yields rose 5 basis points, reflecting sustained but moderated inflation concerns. The market interprets the data as consistent with a Fed that may slow rate hikes but remain vigilant.

Looking ahead, the trajectory of Average Hourly Earnings will be critical for inflation and monetary policy. Three scenarios emerge:

Bullish scenario (20% probability)

• Wage growth stabilizes around 3.50%-3.70%, supporting steady consumer spending.
• Inflation pressures ease gradually, allowing the Fed to pause rate hikes.
• Labor market remains resilient, sustaining moderate economic growth.

Base scenario (60% probability)

• Wage growth continues slow decline toward 3.20%-3.50% by year-end.
• Fed maintains current rates, signaling patience amid mixed inflation signals.
• Moderate economic growth with some labor market softening.

Bearish scenario (20% probability)

• Wage growth unexpectedly accelerates above 4%, reigniting inflation fears.
• Fed resumes aggressive rate hikes, risking recession.
• Financial markets face volatility amid tightening financial conditions.

Structural & long-run trends

Long-term wage growth is influenced by demographic shifts, productivity gains, and labor force participation. The current moderation fits a broader trend of subdued wage inflation despite tight labor markets, partly due to automation and globalization effects.

The September 2025 Average Hourly Earnings YoY figure of 3.70% confirms a softening wage inflation environment. While still above the Fed’s 2% target, the downward trend suggests easing labor market pressures. This data supports a cautious but patient Federal Reserve stance, balancing inflation control with growth risks. External geopolitical risks and fiscal policy shifts remain key uncertainties. Financial markets have priced in a slower pace of tightening, but any unexpected wage acceleration could disrupt this outlook.

Key Markets Likely to React to Average Hourly Earnings YoY

The Average Hourly Earnings YoY release is a critical gauge of inflationary pressures and labor market health. Markets that closely track this indicator include US Treasury yields, the US dollar, equity indices, and select commodities. Wage growth influences consumer spending, corporate margins, and monetary policy expectations, driving price action across asset classes.

• SPX: S&P 500 index reacts to wage-driven inflation expectations impacting corporate profits.
• USDEUR: The USD/EUR currency pair moves with shifts in US monetary policy outlook tied to wage data.
• BTCUSD: Bitcoin often responds to inflation and monetary policy signals reflected in wage trends.
• TSLA: Tesla’s stock price is sensitive to consumer demand shifts influenced by wage growth.
• USDCAD: The US dollar/Canadian dollar pair reacts to US labor market data affecting cross-border trade and capital flows.

FAQ

What is Average Hourly Earnings YoY?

Average Hourly Earnings YoY measures the percentage change in wages paid per hour compared to the same month last year, indicating wage inflation.

Why does Average Hourly Earnings matter for the economy?

It signals labor market tightness and inflation pressures, influencing consumer spending, monetary policy, and financial markets.

How does Average Hourly Earnings affect monetary policy?

Rising wages can prompt the Federal Reserve to tighten policy to control inflation, while slowing wage growth may allow for easing or pausing rate hikes.

Takeaway: The September 2025 wage growth slowdown to 3.70% points to easing inflation pressures, supporting a cautious Fed and balanced market outlook.