Employment costs rise marginally in fourth quarter

WASHINGTON Thu Jan 31, 2013 8:33am EST

WASHINGTON (Reuters) - Labor costs rose modestly in the fourth quarter, pointing to benign wage inflation that should allow the Federal Reserve to continue its monetary stimulus program to nurse the sluggish economy.

The Employment Cost Index, the broadest measure of labor costs, increased 0.5 percent after rising 0.4 percent in the third quarter, the Labor Department said on Thursday.

The increase was in line with expectations. In the 12 months through December, compensation costs advanced 1.9 percent.

During periods of strong economic growth, the U.S. central bank closely monitors the index for signs of wage inflation. High unemployment amid a lackluster economic recovery is keeping a lid on wage pressures.

The U.S. central bank on Wednesday left in place its monthly $85 billion bond-buying plan, noting that economic activity had "paused" in recent months.

Output unexpectedly contracted in the fourth quarter, largely because of a sharp slowdown in the pace of inventory accumulation and a plunge in defense spending.

The Fed has kept overnight interest rates near zero since late 2008 and it has tripled its balance sheet to about $3 trillion through its purchases of securities, which are aimed at pushing longer-term borrowing costs lower.

Wages and salaries, which account for 70 percent of employment costs, increased 0.3 percent in the fourth quarter after a similar gain in the prior quarter.

They were up 1.7 percent in the 12 months through December, up from 1.4 percent in the same period in 2011.

Benefits rose 0.6 percent in the last three months of 2012 after advancing 0.8 percent in the third quarter. Benefit costs increased 2.5 percent in the 12 months through December, slowing from 3.2 percent in the period through December 2011.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

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