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Employment Costs in U.S. Rose Above Forecast in Second Quarter

July 31 (Bloomberg) -- Employment expenses in the U.S. grew faster than forecast in the second quarter as private industry spent more on wages.

The employment cost index climbed 0.5 percent, the Labor Department said today in Washington. The increase was more than the 0.4 percent median estimate of 42 economists in a Bloomberg survey.

An improving job market may be prompting private employers to pay more, increasing costs. Faster wage growth may encourage households to increase their consumption, which accounts for about 70 percent of the U.S. economy.

“The labor market is improving, it’s improving very slowly,” Kevin Harris chief economist at Informa Global Markets in New York, said before the report. “That would be the driver in an increase in employment costs. But you would expect those costs to go up slowly.”

The index measures companies’ costs of wages, benefits and employer-paid taxes such as Social Security and Medicare. Projections ranged from an increase of 0.3 percent to 0.8 percent.

For private-sector employees, wages climbed 0.6 percent, after a 0.5 percent gain in the first quarter. State and local government workers’ pay rose 0.2 percent.

Private Industry

The Labor Department said before today’s report that it corrected the first quarter’s employment cost index to 0.5 percent from 0.3 percent after it discovered errors in benefits data for private industry. The second-quarter rise matches the first quarter’s.

Overall wages climbed 0.4 percent last quarter after a 0.5 percent increase in the previous three months, today’s report showed. Benefit costs advanced 0.4 percent on a quarterly basis, less than the 0.6 percent gain in the three months ended in March.

Year over year, benefit expenses increased 2.2 percent.

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

The Labor Department is forecast to report a 185,000 increase in payrolls on August 2, according to the median estimate in a Bloomberg survey, after a gain of 195,000 in each of the past two months. With slow growth and few signs of inflation, Federal Reserve policy makers have room to continue their policy of injecting money into financial markets. Their decision is scheduled to be announced at 2 p.m. today.

To contact the reporter on this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net

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

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