- The Washington Times - Thursday, January 30, 2003

WASHINGTON, Jan. 30 (UPI) — The Labor Department said Thursday the Employment Cost Index, its key gauge of wage-and-benefit costs, posted its smallest increase during the final quarter of 2002 in three years.

The government said the ECI rose 0.7 percent in the final quarter of 2002 — its smallest increase since a 0.4 percent rise during the first quarter of 1999. For all of 2002 the government said the index rose 3.4 percent — its smallest gain since 1999.

Economists on Wall Street were expecting labor costs to rise at a 0.9-percent rate in the fourth quarter after rising at a 0.8-percent clip during the third quarter and jumping 1 percent during the second quarter of last year.

The ECI is a measure of total employee compensation costs, including wages and salaries as well as benefits. The Employment Cost Index is the broadest measure of labor costs.

Investors and the Federal Reserve watch the report because the ECI is an easy way to evaluate wage trends and the risk of wage inflation. Fed chairman Alan Greenspan mentions wage inflation frequently.

By tracking labor costs, investors can gain a sense of how much businesses are feeling the need to raise prices. If wage inflation threatens, it's likely that interest rates will rise and bond and stock prices will fall.

The latest report from the government showed benefits rose 1.3 percent in the fourth quarter after rising 1.4 percent in the third quarter. Benefit costs jumped 5 percent for 2002.

Wages and salaries, which account for 70 percent of compensation, rose 0.4 percent in the fourth quarter after rising 0.5 percent in the third quarter.

In the goods-producing sector, the government said employment costs rose 1.0 percent in the fourth quarter after rising by just 0.7 percent in the previous quarter. However, employment costs in the service sector rose 0.5 percent after gaining 0.6 percent in the third quarter.

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