Labor Costs Rise Fastest in Two Years

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A big increase in the cost of employee benefits drove up the Employment Cost Index by 1 percent in the third quarter, the fastest pace in more than two years.

The Labor Department (DoL) reported that the increase in wages and benefits paid to American workers was the biggest quarterly increase since another 1 percent rise in the second quarter of 2004.

The increase was led by rising costs for health insurance, pensions and other benefits, such as vacations. The latest figures slightly exceeded expectations of Wall Street analysts.

“Bottom line is that there is no indication that compensation has cooled, despite slower economic growth,” said Christopher Low, chief economist at FTN Financial in New York, Bloomberg News reported.

For the 12 months ending in September, overall compensation costs were up 3.3 percent, while inflation measured 2.1 percent. It's the first time compensation costs rose faster than inflation in two years, MarketWatch reported.

The Federal Reserve is watching the numbers to see if rising interest rates are having the intended effect of dampening inflation pressures without slowing the economy too much.

The rise in employment costs, though at a two-year high, are considered modest overall. "The still-moderate gains in the [employment cost index] underscore the continued difficulty that companies are having in raising prices for finished goods, and therefore the ongoing need to aggressively try to limit increases in labor costs," Joshua Shapiro, chief economist for MFR, told MarketWatch.

The overall economy grew at an annual rate of just 1.6 percent over the third quarter, which is the slowest pace in three years.

Read the full government report at

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