Employment Costs in U.S. Climbed at Slower Pace in First Quarter

Employment expenses in the U.S. grew at a slower pace in the first quarter, signaling the job market will not contribute to inflation.

The employment cost index increased 0.3 percent, the smallest gain since the third quarter of 2011 and less than the median estimate in a Bloomberg survey, following a revised 0.4 percent gain in the prior quarter, the Labor Department reported today in Washington. The smallest gain in benefit costs on record may be partly influenced by an error in the data for sales and office workers, according to the report.

Slow economic growth and unemployment that remains higher than levels prior to the recession are allowing employers to hold the line on worker pay and other costs. Limited wage growth in turn is making it more difficult for households to step up purchases, which account for about 70 percent of the economy.

“There’s a lot of slack in the labor market and the economy’s recovering only slowly,” Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut, said before the report. “There’s very little upward pressure on compensation for American workers.”

The median forecast in the Bloomberg survey of 45 economists called for a 0.5 percent rise in the employment cost index, which measures companies’ costs of wages, benefits and employer-paid taxes such as Social Security and Medicare. Projections ranged from increases of 0.3 percent to 0.7 percent.

Wage gains climbed 0.5 percent last quarter after a 0.3 percent increase in the previous three months, today’s report showed. Benefit costs advanced 0.1 percent, matching the gain in the first quarter of 1999 as the smallest in data going back to 1982.

Data Removed

The increase in benefit costs followed a 0.6 percent rise in the last three months of 2012. Data covering sales and office workers were removed from the calculation when an error was found in the information, the report said. Only a fraction of the slowdown in benefit costs can be attributed to the error, Labor said.

Employment costs rose 0.9 percent per quarter on average in the five years before the recession began in December 2007.

For private-sector employees, wages climbed 0.5 percent, more than the fourth quarter of last year. Pay for state and local government workers advanced 0.2 percent. Wages for all workers were up 1.6 percent from the same quarter a year ago.

Compared with the same three months in 2012, benefit expenses were up 1.9 percent.

The Labor Department is forecast to report a 150,000 increase in payrolls on May 3 after a gain of 88,000 in March, according to the median estimate in a Bloomberg survey. With slow growth and few signs of inflation, Federal Reserve policy makers probably will continue their policy of injecting money into financial markets when they meet this week.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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