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Workers' Wages, Benefits Tick Up 0.7 Pct.

Posted on: Thursday, 29 January 2004, 06:00 CST

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 lines.

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 marked the smallest gain 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. Since then, they have slowly drifted downward.

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." That fueled speculation about when the Fed might begin to push up rates.

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.

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 on Friday 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 benefits 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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