Employment Cost Index Up 1.1. Percent in First Quarter
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U.S. employment costs rose by more than expected in the first quarter this year, a government report showed on Thursday, as wage growth remained modest but benefit costs surged again.
The Labor Department (search) said the Employment Cost Index (search), a broad gauge of what employers pay in wages and benefits, rose 1.1 percent in the first three months of the year compared with a 0.8 percent rise the previous quarter.
The jump was the largest quarterly increase in a year and above Wall Street's forecast for a 0.9 percent gain.
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Benefit costs advanced 2.4 percent — the largest three-month rise since a 2.7 percent leap in the third quarter of 1982 — after a 1.4 percent increase in the fourth quarter. A Labor Department official said the first quarter's gain was largely due to a rise in payments by companies to defined benefit pension plans.
Wages and salaries gained a more modest 0.6 percent after a 0.5 percent rise the previous quarter, which was the slightest rise since the last quarter of 2002.
"Although benefits contribute only 30 percent to total compensation costs, two-thirds of the increase in compensation costs was attributable to rises in benefit costs during the December 2003 to March 2004 period," the department said in the report.
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Financial markets scrutinize this data series because subdued wage costs have helped contain inflation and allowed the Federal Reserve (search) to hold interest rates at 1958 lows of 1 percent since June last year.
But a resurgence in job growth and a pickup in the March consumer price index has focused attention on the Fed's next move, with many analysts expecting it to start signaling a tightening bias over the coming months.
On a 12-month, unadjusted basis, compensation was up 3.8 percent in March, with wages and salaries rising 2.5 percent and benefit costs surging 6.9 percent.