The U.S. employment cost index came in more or less in line with market expectations, posting a 0.8% rise in the first quarter of 2002 over the last quarter of 2001.

RBC Financial Group economists says, “This modest rate of employment cost acceleration reflects weak U.S. labour market conditions with wages growing at their slowest pace in about four years and benefits costs continuing to rise at a fairly rapid clip of about 1.0%.”

“Glancing at the details, the Bureau of Labor Statistics’ tabulations show that benefits continued to lead wage and salaries, advancing by 1.0% quarter-on-quarter,” reports CIBC World Markets. “Overall compensation growth may actually be a bit weaker than the 0.8% reported in Q1 would suggest.”

In separate news, U.S. initial jobless claims were close to consensus expectations at 421,000 for last week, down from an upwardly revised figure of 452,000 for the previous week. “These numbers have been difficult to interpret in recent weeks due to the impact of applications for extended benefits as part of the economic stimulus package,” admits RBC Financial. “This impact may be in the early stages of lifting, such that claims could return to posting the improvements witnessed in the earlier parts of the week.”

“Although today’s ECI numbers was on the low side of the consensus, the evidence that compensation pressures remain muted is hardly surprising,” says CIBC. “Along with evidence of continued strength in productivity, signs that labor costs remain muted are a potential plus for corporate earnings. The share of pre-tax earnings in GDP has sagged to half century lows in recent quarters but that trend should reverse itself as the recovery lifts margins and sales volumes.”

“The U.S. ECI continues to outstrip the rate of inflation, but with companies still focused on restoring their bottom lines, it is likely that they will continue to lay off workers until profits turn around. Given this employment outlook, labor cost growth will continue to moderate,” says BMO Nesbitt Burns.