Employment Cost Soars; Jobless Claims Up

Americans' wages and benefits in the first quarter took their biggest leap in a year, suggesting the slowing economy isn't hurting workers who still have jobs. However, new claims for state unemployment insurance last week hit a five-year high.

The Labor Department reported Thursday that its employment cost index, a closely watched gauge of inflation, rose a seasonally adjusted 1.1 percent in the January-March quarter. That compared with a 0.9 percent rise in the fourth quarter of 2000.

The first-quarter advance matched many analysts' expectations and marked the largest gain since the first three months of 2000, when workers' wages and benefits rose by 1.3 percent.

In another report, the department said the number of Americans filing new claims for jobless benefits last week rose by 18,000 to a seasonally adjusted 408,000. That was the highest level since March 23, 1996.

A big part of the increase was attributed to layoffs of New York school workers paid on an hourly basis — such as janitors, bus drivers and cafeteria staff — during spring break, a government analyst said.

The increase in new jobless-claims applications was bigger than many analysts expected and provides fresh evidence of how employers' appetite for labor has waned because of the weaker economy.

The more stable four-week moving average of claims, which smoothes out week-to-week volatility, also rose last week, to 394,500, the largest increase since Oct. 10, 1992.

In the compensation report, the costs of benefits, such as health insurance and vacations, rose by 1.3 percent in the first quarter, up from 1.0 percent in the previous quarter. The first-quarter increase was the largest since the first quarter of last year, when they rose by 1.8 percent.

The wages and salaries component of the employment cost index, viewed by economists as the best measure of changes in workers' compensation, increased by 1.0 percent in the first quarter, following a 0.8 percent rise. That marked the largest gain since the second quarter of 2000, when they also rose by 1.0 percent.

For the 12 months ending in March, Americans' wages and benefits rose 4.1 percent, a moderation from the 4.3 percent rise posted for the same period a year ago.

Economists had expected the 1.1 percent rise in compensation, in part because of large increases in health care insurance premiums during the first quarter. In the months ahead, economists believe employers will offer less generous compensation packages to workers as the slowing economy and rising layoffs take their toll on the labor market.

The Federal Reserve has slashed interest rates four times this year, totaling 2 percentage points, in an effort to ward off recession. One of the reasons the Fed has been able to act so aggressively is that inflation has been low. Although energy prices have been soaring, prices of most other goods have been in check.

Economists expect the Fed to cut rates for a fifth time when policy-makers meet May 15.

In the jobless-claims report, 12 states and territories reported increases in new claims and 39 reported decreases for the week ending April 14. The state data lag a week behind the national figures and are not seasonally adjusted.

Hawaii reported the largest increase in claims, up 2,782. Officials gave no reason for the rise. Others with large increases were: New Jersey, 1,132; New York, 946; and Florida, 826.

North Carolina reported the largest decrease in new jobless claims, down 10,334. Officials attributed that to fewer layoffs in the construction, trade, textile, apparel and furniture industries.

Separately, a survey by the National Association for Business Economics Thursday forecast economic growth between zero and 2 percent in the first half of this year. But the group does not expect the economy to fall into recession.