Washington, DC, April 28, 2006--The employment cost index, considered one of the best gauges for tracking labor-cost pressures, moderated in the first quarter to a 0.6% increase, down from a 0.8% pace in the last three months of 2005, according to a Labor Department.
The gain marked the smallest quarterly increase in employment costs in seven years.
Economists had been forecasting a 0.9% increase in employment costs in the first quarter.
But the Labor Department's release included several methodological changes, which made forecasting difficult.
Employment costs are a major cause of worry for the Federal Reserve. The central bank theorizes that inflation can only be sustained if workers force their bosses to pay higher compensation, which is then passed on to customers in the form of higher prices.
The Fed's latest Beige Book survey of current economic conditions, released earlier this week, found tight labor markets for skilled workers. This could put upward pressure on wages in coming quarters.
In the first quarter, benefit costs rose 0.5%, also the smallest increase since the first quarter of 1999. Economists say health-insurance costs continue to shift from employers to employees.
Meanwhile, first-quarter wages and salaries rose 0.7%, the same pace as 2005's fourth quarter.
Over the past year, employment costs have increased 2.8%, down from a 3.1% rise in the fourth quarter. This marked the smallest year-over-year increase since December 1995.
For private-sector workers, the ECI increased 0.6% in the first quarter as wage costs moved 0.7% higher and benefit costs rose 0.4%.
For state and government workers, compensation slowed to a 0.5% gain, down from a 1.1% increase in the fourth quarter.
Measured over the past year, the ECI for private-sector workers is up 2.6%, down from a similar 2.9% increase in the fourth quarter.
