Employment expenses in the U.S. rose in the first quarter at a rate indicating wage pressures won’t stoke inflation.
The employment cost index increased 0.4 percent, less than forecast, and followed a revised 0.5 percent gain in the prior quarter, Labor Department figures showed today. Economists projected a 0.5 percent rise, according to the median estimate in a Bloomberg News survey. Wages and benefits for all workers rose.
With more than 12 million people out of work in the U.S., businesses have been able to ramp up hiring without corresponding pay gains. Weak income growth is one of the reasons Federal Reserve policy makers said this week that limited price pressures will allow them to keep interest rates near zero until at least late 2014 to support the economy.
“Wage increases have been very benign,” Harm Bandholz, chief U.S. economist at UniCredit Group in New York, said before the report. “The reason is, of course, the under-utilization of resources. The unemployment rate has come down sizably, but employees still do not have much bargaining power to ask for higher wages.”
Projections from 50 economists ranged from increases of 0.3 percent to 0.7 percent. The employment cost index measures the expense to companies of wages, benefits and employer-paid taxes such as Social Security and Medicare.
Wages and salaries, which account for about 70 percent of total employment costs, rose 0.5 percent in the first quarter, after a 0.3 percent gain in the prior three months, today’s report showed. Wages increased 1.7 percent from the same quarter of 2011.
For state and local governments, workers’ wages rose 0.4 percent, following a fourth-quarter increase of 0.3 percent.
Benefit costs for all workers, which include some bonuses, severance pay, health insurance and paid vacations, rose 0.5 percent last quarter. Compared with the same three months in 2011, the expenses were up 2.7 percent.
Among companies, total compensation costs rose 0.4 percent, compared with a 0.5 percent gain in the prior quarter.
“On the expense side, we have a bunch of things that are our friend,” Bob Dennis, chairman and chief executive officer of retailer Genesco Inc. (GCO:US), said at a March 28 investor conference. “Most obviously is labor. In an 8 percent to 9 percent unemployment environment, there is not a lot of upward pressure on wages.”
Fed policy makers on April 25 maintained their pledge to keep the federal funds target rate near zero after more than two years of economic growth haven’t yet brought unemployment below 8 percent.
“Economic conditions -- including low rates of resource utilization and a subdued outlook for inflation over the medium run -- are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014,” the central bankers said in a statement after a two-day meeting.
Supporting policy makers’ view that inflation will ebb, the cost of living in the U.S. increased at a slower pace last month as the run-up in energy prices trailed off. The consumer-price index rose 0.3 percent in March, after climbing 0.4 percent the prior month, Labor Department data showed April 13.
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