Tags: us | economy | Employment | Costs | Inch | Higher

Employment Costs Inch Higher in First Quarter

Friday, 29 Apr 2011 09:01 AM

Employment expenses in the U.S. rose in the first quarter at a rate that indicates inflation may stay subdued in the coming months.

The 0.6 percent increase in the employment cost index from January through March followed a 0.4 percent gain in the prior three-month period, Labor Department figures showed today. Economists projected a 0.5 percent climb, according to the median estimate in a Bloomberg News survey.

More than 13.5 million people were unemployed last month, giving workers little leverage to ask for wage increases. Additionally, with business and households expecting gasoline and energy price increases to be temporary, Federal Reserve Chairman Ben S. Bernanke said this week that surging commodity costs are “unlikely to induce significant” inflation in labor costs.

“Workers are in a weak position right now because of the tremendous number of unemployed people we have in the country,” Robert Dye, a senior economist at PNC Financial Services Group Inc. in Pittsburgh, said before today’s report. “High unemployment should continue to be an overall drag on wages for the remainder of this year.”

Estimates of first-quarter employment costs ranged from a decrease of 0.5 percent to an increase of 0.6 percent, according to the survey of 46 economists.

Wages, Benefits

The employment cost index measures the expense to companies of wages, benefits and employer-paid taxes such as Social Security and Medicare.

The U.S. consumer-price index increased 0.5 percent last month, figures from the Labor Department showed April 15. Excluding volatile food and energy, the so-called core gauge rose 0.1 percent, less than forecast and restrained by lower clothing expenses and smaller gains in medical care.

Wages and salaries, which account for about 70 percent of company expenses, rose 0.4 percent in the first quarter, after the same gain in the prior three months, today’s Labor Department report showed. Wages increased 1.6 percent from the same quarter of 2010.

Benefit costs for all workers, which include some bonuses, severance pay, health insurance and paid vacations, increased 1.1 percent last quarter.

Wages for state and local government workers rose 0.4 percent, following the same increase in the fourth quarter.

Total Compensation

Among companies, total compensation costs rose 0.5 percent, the same as in the fourth quarter.

While the average price of a gallon of gasoline reached $3.89 on April 27, the highest since August 2008, unemployment near 9 percent is keeping people from asking for wage raises.

BJ’s Restaurants Inc., which operates its namesake brewery, pizza and grill chains, will find maintaining this year’s “solid” sales “significantly more challenging” because of higher gas and energy prices, Chief Financial Officer Gregory S. Levin said in an April 20 conference call with analysts.

Still, Levin said the Huntington Beach, California-based company does “not anticipate significant pressure for the remainder of 2011 for both wages and salaries.”

Federal Reserve policy makers supported that view, boosting their forecast for a measure of prices because of increasing commodity cost while holding that they expect “these effects to be transitory,” according to a statement from the Federal Open Market Committee released April 27.

“If households and firms continue to expect inflation to return to a mandate-consistent level in the medium term, then increased commodity prices are unlikely to induce significant second-round effects in which inflation takes hold in non- commodity prices and in nominal wages,” Fed Chairman Bernanke said in a press conference following the release.

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