Labor costs accelerate in first quarter
Benefits jump behind 1.4% ECI gain
By Rachel Koning, CBS MarketWatch
Last Update: 8:30 AM ET Apr 27, 2000 NewsWatch
WASHINGTON (CBS.MW) – As expected, steeper benefits forced private companies and the government to pay higher labor costs in the first quarter.
The Employment Cost Index rose 1.4 percent in the first three months of the year, the Labor Department reported Thursday, the largest increase since a like-size jump was recorded for the third quarter of 1989.
The increase beats the consensus estimate of 1.1 percent provided by a CBS.MarketWatch.com poll of economists. See Economic Forecast. The fourth-quarter ECI was revised marginally lower, to a 1-percent gain from the 1.1-percent rise initially reported.
Year over year, the ECI rose 4.3 percent in the first quarter, the largest increase in more than eight years, a Labor Department official confirmed.
Benefits alone rose 2 percent during January to March, a growth rate not seen in 10 years. Benefits costs climbed 0.8 percent and 1.2 percent in the third and fourth periods of last year, respectively.
"Whereas benefits costs had played a mitigating role in containing employment costs in recent years, the pendulum has now shifted the other way," said Tony Crescenzi, a bond market analyst with Miller, Tabak & Co., ahead of the report. "One waning positive influence is the one-time benefit cost reduction that companies enjoyed when they shifted from traditional insurance plans to managed care."
"Insurance premiums have risen in the high single digits for a second year," Crescenzi continued, also pointing out that the March consumer price index showed medical costs up 3.9 percent year over year as prescriptions and hospital stays were both more expensive.
Wages and salaries, which comprise the largest piece of the employment cost pie, rose 1.1 percent, the largest gain since last year's second quarter. That gain follows repeat increases of 0.9 percent in the third and fourth quarters.
News of higher labor costs, which could prompt businesses to raise prices, likely won't sit well with monetary policymakers who are working to keep inflation from spoiling a record economic expansion.
Most observers already expect a sixth increase in the Federal funds overnight lending rate when the Fed next meets on May 16.
For just the private sector, worker compensation costs rose 1.5 percent, on the heels of a 1-percent increase in the final months of 1999 and a 0.9-percent pickup a quarter earlier. For the year ending in March, private compensation rose 4.6 percent after climbing 3 percent in the fourth period.
In a separate report, weekly first-time requests for unemployment benefits rose 26,000 to 283,000, the highest mark in over two months. More importantly, the four-week moving average of applications, seen as a better window on the employment situation is at 267,000. That average has stayed below the 300,000 level for nearly three months, a level that most economists say is indicative of tight labor-market conditions.