U.S. First Quarter Employment Cost Index Rises 1.3%
By Andrew Ward
Washington, April 29 (Bloomberg) -- U.S. labor costs jumped the most in 14 years during the first quarter as expenses for benefits rose more than twice as fast as wages and salaries.
The employment cost index, a gauge of U.S. companies' total labor expenses, gained 1.3 percent in the first quarter after increasing 0.7 percent in the fourth quarter, the Labor Department said. The rise matched biggest gain since the 1989 third quarter.
Benefit costs surged 2.2 percent, reflecting higher expenses for health insurance and retirement benefits, the government said. Wages and salaries rose 1 percent as U.S. workers continued to become more productive. The jump in compensation costs in the January-March period came even as the economy lost 262,000 jobs.
``Higher benefit costs are really cutting into corporate profits,'' said Richard Yamarone, chief economist at Argus Research Corp. in New York, whose forecast of a 1.4 percent increase was the closest in a Bloomberg News survey. ``It doesn't bode well for the future job creation.''
Economists had expected a 0.8 percent gain, based on the median of 58 estimates in the Bloomberg survey. The index tracks the cost to companies for wages, benefits and employer-paid taxes such as social security and Medicare, with adjustments to spread cost increases over the course of a year.
Employment costs rose 3.9 percent over the past 12 months, up from the 3.4 percent increase in the year through the fourth quarter.
Wages and Salaries
The jump in wages and salaries matched the largest since the first quarter of 2000 and compared with a 0.5 percent increase from October through December. Salaries for finance, insurance and real estate employees rose 5.2 percent, leading the increase, after a 0.1 percent gain in the previous quarter. Salaries fell 0.3 percent for retail workers.
Benefit costs -- including severance pay, health insurance, vacation pay and referral bonuses -- had the biggest jump since the 1988 first quarter and followed a 1.3 percent gain in the fourth quarter. For the past 12 months, benefit expenses surged 6.1 percent, up from the 4.9 percent gain in the year-earlier period.
``Much of the increase in benefit costs stemmed from the continuing rise in the costs for health insurance and the recent upturn in retirement costs, particularly for defined benefit pension plans,'' the Labor Department said.
Employer costs for benefits account for almost 30 percent of total compensation outlays, the government said.
Companies have been reporting ``a lack of upward pressure on wages, but firms continued to note substantial increases in the costs of health care and insurance,'' the Federal Reserve said in its most recent survey of regional economic conditions, known as the Beige Book, issued last week.
Health Insurance Premiums
Health insurance premiums rose an average of 14 percent in the first quarter, according to a survey by Towers Perrin, a management and human resources consulting firm. That is the biggest obstacle for companies seeking to hire new workers, according to poll of 120 chief executives by the Conference Board, a New York-based research group.
The Fed has held its overnight bank lending rate at a 41-year low of 1.25 percent for the past five months, as mild inflation allowed policy makers to push for stronger economic growth. The consumer price index, excluding food and energy prices, rose at a 0.8 percent annual rate in the first three months of the year.
U.S. airlines have pushed for their employees to accept pay cuts amid mounting losses as traffic fell because of the threat of terrorist attacks, the slowing U.S. economy and the outbreak of a severe acute respiratory syndrome.
AMR Corp.'s American Airlines, the world's largest air carrier, has leaned on its 109,060 workers to accept $1.8 billion in labor cost cuts as part of an effort to avoid being forced into a bankruptcy reorganization.
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