Washington, April 26 (Bloomberg) -- Labor expenses for U.S. businesses accelerated in the first quarter as wages and benefits such as health insurance increased, government figures showed.
The employment cost index rose 1.1 percent in the quarter ended March 31 after rising 0.9 percent in the previous three months, the Labor Department said. Labor costs rose 4.1 percent in the 12 months ending in March. That compares with a 4.3 percent rise in the 12 months ending in March of last year.
Slower economic growth may help contain labor costs in coming months, analysts said. Tame labor costs make it easier for Federal Reserve policy makers to reduce interest rates and bolster an economy that grew in the fourth quarter at the slowest rate in 5 1/2 years.
``With the economy slowing and the unemployment rate being pushed higher, we are likely to see labor costs'' ease in coming months, said Steven Wood, chief economist at FinancialOxygen Inc. in Walnut Creek, California, before the report.
Analysts expected a 1.1 percent increase in first-quarter employment costs, according to a Bloomberg News survey. Labor costs account for about two-thirds of the final costs of goods and services.
A separate report from the Labor Department showed first-time claims for state unemployment benefits rose by 18,000 last week to 408,000 -- the highest level since March 1996.
Fed officials have lowered their target for the overnight bank lending rate by 2 percentage points to 4.5 percent since the start of the year to help boost growth. The economy expanded at a 1 percent annual rate in the fourth quarter. And in the first quarter, the economy probably grew at a 1.1 percent annual rate, according to economists surveyed by Bloomberg.
`Greater Latitude'
Benign inflation may give Fed policy makers room to keep lowering interest rates if needed. ``Inflation still is very low by longer-term historical standards and it's expected to stay low,'' said Alfred Broaddus, president of the Federal Reserve Bank of Richmond this week. ``That gives the Fed greater latitude to deal with any additional economic weakness,'' he said.
The employment cost index measures the cost to companies of employing a given worker at a given time, with adjustments to spread cost increases over the course of a year.
Wages and salaries make up almost three-fourths of the index. Employer-paid health insurance premiums account for about 5 percent. Social Security taxes, the cost of vacation and sick leave pay, and pension benefits account for the remainder.
Wages and salaries rose 1 percent during the first quarter after rising 0.8 percent in the fourth quarter. In the 12 months ending in March, wages and salaries rose 3.8 percent, compared with a 4 percent increase in the 12 months ending in March 2000.
Cost of Benefits
The overall cost of benefits, such as referral bonuses, health insurance, vacations and the employer-paid portion of Social Security taxes, rose 1.3 percent in the first quarter after rising 1 percent in the fourth quarter. In the 12 months ending in March, benefit costs rose 4.7 percent, compared with a 5 percent increase in the 12 months ending in March 2000.
Hospital companies have been reporting higher first-quarter profits on increased prices and more patients. For HCA-The Healthcare Co., the biggest U.S. hospital company, profits rose 8.2 percent after the company raised prices 6 percent to 8 percent for health insurers.
Tenet Healthcare Corp., the No. 2 U.S. hospital chain, said earlier this month profit rose 30 percent for the fiscal third- quarter ended Feb. 28 as it also treated more patients and got higher premiums from insurers.
Insurers are passing at least a portion of these premium increases along to employers and other customers and that is helping to underpin benefit costs, analysts said.
``The pressure from higher medical costs will be with us for some time,'' said Vincent Boberski, a senior economist at Dain Rauscher Inc. in Chicago, before the report.
Absorbing Cost Increases
Instead of boosting prices on goods and services, some companies are absorbing any increases in labor costs. Rising labor costs are apparent at airline companies.
The tentative agreement reached this week between Delta Air Lines Inc. and its pilots union will cost the third-largest U.S. airline between $2 billion and $2.7 billion, analysts said. Delta pilots' wages will rise 24 percent to 39 percent, depending on the planes they fly and their seniority, by the end of the four-yearcontract.
As a result, other airlines will find it harder to keep their labor costs from rising, they said.
Six airlines last week, including AMR Corp's American Airlines, the world's largest based on passenger miles, reported first-quarter losses because business travel fell and labor and fuel costs climbed. The airlines' biggest expense, labor, has soared as carriers signed new worker contracts. Labor costs rose more than 20 percent at both UAL Corp.'s United and Northwest Airlines Corp. |
