Wages see slight 4th quarter growth
Published: Friday, January 30, 2004 at 6:01 a.m.
Last Modified: Thursday, January 29, 2004 at 11:10 p.m.
WASHINGTON - Workers' wages and benefits grew by 0.7 percent in the final quarter of 2003 - the smallest quarterly increase in a year - as companies still uncertain about the durability of the economic recovery kept a close eye on their bottom line.
The increase in the employment cost index for the October-to-December quarter marked a moderation from the 1 percent advance registered in the previous quarter, the Labor Department reported Thursday.
The 0.7 percent increase in compensation was the smallest since the fourth quarter of 2002 and was slightly weaker than the 0.9 percent rise that economists were forecasting.
In a second report from the department, new claims for unemployment benefits last week dipped by a seasonally adjusted 1,000 to 342,000, the lowest level since the end of December, a sign that the pace of layoffs is stabilizing. Claims hit a high last year of 459,000 in the middle of April. They have since slowly drifted downward.
"People who do have jobs should feel a little more secure because the major housecleaning appears to be finished," said Clifford Waldman, economist at the research group Manufacturers Alliance/MAPI.
Federal Reserve policy-makers, after their meeting Wednesday, offered a hopeful assessment of the nation's employment climate. "Although new hiring remains subdued, other indicators suggest an improvement in the labor market," they said.
The Fed decided to hold a main short-term interest rate at a 45-year low of 1 percent but dropped a pledge to keep rates at near rock-bottom levels for a "considerable period."
The Fed debated at its December meeting dropping the "considerable period" pledge, according to minutes of those discussions released Thursday. Several Fed officials argued that removing the phrase would give the central bank more flexibility when the need arose to start raising rates, but the majority of Fed officials argued that the phrase should be maintained "at least for now," the minutes said.
The Fed's decision to drop the "considerable period" language at this week's meeting sent both stock and bond prices down sharply on Wednesday as Wall Street worried that the Fed has now moved closer to starting to raise interest rates, something it has not done in almost four years.
However, private economists continued to insist that the Fed is still months away from actually raising rates because of continued slack labor markets and continued benign readings on overall inflation.
In the compensation report, increases in the costs of benefits, such as health insurance and vacations, continued to outpace the growth in wages.
Benefit costs rose by 1.2 percent in the fourth quarter, down from a 1.5 percent rise in the third quarter.
Wages and salaries went up by 0.5 percent in the final quarter of 2003. That marked the smallest increase since the fourth quarter of 2002 - and represented a slowing from the 0.7 percent increase in wages and salaries registered in the third quarter.
"Businesses are under pressure to keep costs under control even as the economic recovery advances," said Waldman.
The moderation in compensation came as economists believe the economy slowed in the fourth quarter after growing at a blistering 8.2 percent rate in the third quarter - the strongest performance in nearly two decades. Analysts predict economic growth in the final quarter of 2003 clocked in at a rate of 4 percent to 5 percent, a still healthy pace. The government today will provide its first estimate of economic growth in the fourth quarter.
Analysts were predicting a slowdown in economic growth in the fourth quarter as the stimulative impact of tax cuts and a refinance frenzy seen during the summer faded by winter. Extra cash from tax cuts and from a refinancing boom helped to underpin brisk consumer spending.
For the 12 months ending in December, workers' wages and benefits grew by 3.8 percent, compared with a 3.4 percent increase in 2002. Wages and salaries in 2003 rose 2.9 percent - the same-size increase as the year before. Benefits rose by 6.3 percent in 2003, up from a 5 percent rise in 2002.
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