Growth in US Labour Costs Accelerates in First Quarter

• U.S. labour costs increased more than expected in the first quarter amid a rise in wages and benefits, confirming the early-year inflation surge that will likely delay a much-anticipated interest rate cut later this year.
• The pick-up in labour costs reported by the Labor Department on Tuesday was despite signs of some easing in labour market conditions as supply rises.
• The Employment Cost Index (ECI), the broadest measure of labour costs, increased 1.2% last quarter after rising by 0.9% in the fourth quarter, the Labor Department's Bureau of Labor Statistics said.
• Economists polled by Reuters had forecast the ECI would advance 1.0%. Labour costs increased 4.2% year-on-year after rising by the same margin in the fourth quarter. They have declined from a peak of 5.1% at the end of 2022. Some economists blamed the quarterly rise in wages on challenges adjusting the data at the start of the year for seasonal fluctuations.
• Wages increased 1.1% in the January-March quarter after advancing by the same margin in the prior three months. They jumped 4.4% year-on-year after rising 4.3% in the fourth quarter. Private sector wages rose 1.1% after gaining 1.0% in the prior quarter. They gained 4.3% in the 12 months through March. Wage gains remain above their pre-pandemic levels.
• Productivity, however, decelerated in the first quarter based on last week's gross domestic product report. First-quarter productivity data is due to be published on Thursday.
• According to Conrad DeQuadros, senior economic advisor at Brean Capital, the growth rate of productivity is important in assessing how fast employment costs can increase without pressuring inflation or profit margins. But if residual seasonality depresses GDP and productivity in the first quarter it will likely overstate increases in unit labour costs.

(Source: Reuters)