Wages and salaries rose 0.9 percent in the third quarter, beating expectations and bringing the yearly increase in wages and salaries to 3.1 percent, the largest increase in a decade. The 9.9 percent increase beat the expectation of 0.5 percent.

The unemployment rate is also at 3.7 percent, the lowest it has been since 1969, CNBC reports. Employment costs rose by 0.8 percent in the third quarter, slightly ahead of economists' estimates, possibly signaling more inflation.

"The employment cost index data adds to the broader evidence that wage growth has continued to trend gradually higher over recent quarters," said Michael Pearce, senior U.S. economist at Capital Economics. "And with labor market conditions still tightening, we expect wage growth will accelerate further from here."

Although slow pay growth has been limited during the current recovery, employers now appear to be raising wages to a more typical level for a good economy. With unemployment low and more job openings than unemployed Americans, employers have to compete for workers.

"Wages are grinding higher as the labor market continues to tighten," said Justin Weidner, an economist at Deutsche Bank. "Wage growth is likely to be over 3 percent again soon."

The Labor Department will release average hourly earnings, which are expected to rise above 3 percent for the first time in a decade, later this week.

"How hot is the labor market? Hot enough for employers to pony up some more cash to get workers to come work for them," wrote Chris Rupkey, chief financial economist at MUFG Union Bank.

Consumer confidence is also at its highest level since 2000, according to the Conference Board's Consumer Confidence Survey.

Only 23 percent of companies said they are not having trouble hiring, compared to 42 percent last year. Small businesses are expected to increase compensation by the fastest rate since the National Federation of Independent Business began its survey of small businesses several decades ago.