Rise In Employment Cost Higher Than Expected

By John S. McClenahen Economists generally expected the U.S. employment cost index to have risen about 0.8% during this year's first calendar quarter. They underestimated things, reveal U.S. Labor Department data released on April 29. The index rose 1.3% from January through March, nearly double the 0.7% increase it recorded during the final quarter of 2002. It was the largest gain in the index since the second quarter of 1990, notes Stan Shipley, a senior economist at Merrill Lynch & Co. New York. Wages and salaries rose 1% during the first quarter of this year, but benefit costs, which account for about 30% of compensation, rose 2.2%. Yet, the story may be different the rest of this year. "Since compensation lags the business cycle, we expect it to subside further in the coming quarters as the labor market deteriorates and the unemployment rate rises," says Shipley. "We expect wages and salary growth to fall more than benefits."

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