Wages Show Biggest Gain in a Year

Americans’ wages and benefits in the first quarter posted their biggest gain in a year, suggesting the slowing economy isn’t translating into less compensation for workers who still have jobs.

However, the number of people filing new claims for state unemployment insurance last week hit a five-year high, further evidence that employers’ appetite for workers has waned in the slowdown.

The employment cost index, a closely watched gauge of inflation, rose a seasonally adjusted 1.1% in the January-March quarter after a 0.9% rise in the previous quarter, the Labor Department said Thursday.

In another report, the department said new claims for jobless benefits rose last week by a bigger-than-expected 18,000 to a seasonally adjusted 408,000, the highest level since March 23, 1996.

“The labor market is still in a weakening state and has yet to bottom out,” said Paul Kasriel, chief economist with Northern Trust Co. Economists expect the unemployment rate, now at 4.3%, to rise in the coming months, possibly peaking around 4.7% by late summer.

The more stable four-week moving average of jobless claims, which smooths out week-to-week volatility, also rose last week, to 394,500, the highest level since Oct. 10, 1992.

A separate private report said the number of dot-com layoffs in April surged 84% from the previous month to reach an all-time high of 17,554. Employment search firm Challenger, Gray & Christmas said its report also showed that the dot-com crunch has reached traditional bricks-and-mortar companies that had expanded onto the Internet.

In the compensation report, the first-quarter advance matched many analysts’ expectations and marked the largest gain since the first quarter of 2000, when workers’ wages and benefits rose by 1.3%.

Still, most analysts weren’t worried that the increase would spark inflation down the road.

Some analysts predicted employers would offer less generous compensation to workers in the months ahead as the slowing economy and rising layoffs take their toll on the labor market.

Others said any increased compensation costs probably would translate into a squeeze on profits rather than increased prices, because the weak economy makes it difficult for some companies to charge more for their goods and services.

National Assn. of Manufacturers President Jerry Jasinowski said the rise wasn’t a harbinger of worsening inflation because “the first quarter normally shows a temporary speed-up in labor costs due to annual salary increases and benefit adjustments.”

The wages and salaries component of the employment cost index increased 1% in the first quarter, following a 0.8% rise. That marked the largest gain since the second quarter of 2000, when they also rose by 1%. The costs of benefits, such as health insurance and vacations, rose by 1.3%, up from 1% in the previous quarter and the largest gain since last year’s first quarter, when costs rose by 1.8%.

Separately Thursday, the National Assn. for Business Economics said its members have grown more pessimistic about the prospects for U.S. economic growth during the first half of 2001 but expect the nation to skirt a recession.

The group said 55% of the 131 members polled this month estimated economic growth of 1% or less during the first six months. In January, only 10% of the members surveyed expected growth below 1%.

Despite the gloomier estimate, most members still say the economy will not sink into a recession--commonly defined as two straight quarters of economic contraction.

In the April survey, 10% estimated the economy would contract in the first half of this year. None expected a contraction when the group surveyed its members in January.