Labor-Related Costs Fall at Quickest Pace in 4 Years

Economic IndicatorsReuters

A gauge of U.S. labor-related costs fell in the first quarter by the most in four years, although the reading appeared to be distorted by a shift in employee compensation during the prior period to avoid a tax hike.

Unit labor costs fell at a 4.3% annual rate during the period, revised readings from the Labor Department showed on Wednesday. The government had initially estimated a 0.5% gain, and the downward revision confounded analysts' expectations that the reading would remain unrevised.

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However, the government revised sharply higher its estimates for employee compensation during the fourth quarter after incorporating new data sources.

That brought the readings more in line with other indicators of wages which have suggested that employers pulled forward compensation for staff into the fourth quarter so that employees would pay taxes on that income at 2012 tax rates. Washington raised tax rates in January.

Still, the figures show minimal inflationary pressures. Unit labor costs were up 1.1% in the year through the first quarter. That suggests the U.S. Federal Reserve has plenty of room to keep interest rates low, although signs of stronger job creation have boosted expectations the Fed could begin reducing its monetary stimulus this year.

Wednesday's report also showed U.S. nonfarm productivity rose modestly in the first quarter, increasing at a revised 0.5% annual rate. Economists polled by Reuters had expected productivity to gain at a 0.7% rate, the pace initially reported by the government.