COMPENSATION rises 0.9 percent in second quarter, slowest pace since fourth quarter

WASHINGTON (AP) _ Americans' wages and benefits grew by a smaller-than-expected 0.9 percent in the second quarter, suggesting the weak economy is translating into less generous compensation for workers.

Thursday, July 26th 2001, 12:00 am

By: News On 6

WASHINGTON (AP) _ Americans' wages and benefits grew by a smaller-than-expected 0.9 percent in the second quarter, suggesting the weak economy is translating into less generous compensation for workers.

The April-June increase in the employment cost index, a closely watched gauge of inflation, was down from a seasonally adjusted 1.1 percent growth in the previous quarter, the Labor Department reported Thursday.

The rise in compensation was smaller than the 1 percent increase many analysts were forecasting and the weakest since the fourth quarter of last year, when compensation also rose by 0.9 percent.

In another report, the department said new claims for state unemployment insurance last week fell to a four-month low, offering workers some hope that the rash of layoffs seen in recent months may be easing a bit. Claims plunged by a seasonally adjusted 51,000 to 366,000, the lowest level since March 24.

A government analyst offered no specific reason for the larger-than-expected decline in weekly claims. The analyst, however, said claims data typically are volatile in July, largely because of the increased volume of temporary layoffs in industries such as automobile manufacturing and textiles, making seasonal adjustment difficult.

Given that, private analysts during this period tend to look at another figure as a better barometer of layoffs. The more stable four-week moving average of claims, which smoothes out week-to-week fluctuations, fell last week by a more modest 6,250 to 409,000, the lowest level since the end of June.

At the beginning of July, weekly claims hit a nine-year high of 449,000.

In a third report, the Commerce Department said orders for costly manufactured goods, such as cars, fell by 2 percent in June, following a 2.7 percent rise, suggesting that manufacturers, who have been hardest hit by the yearlong economic slowdown, continue to struggle.

In the compensation report, the costs of benefits, such as health insurance and vacations, rose by 1 percent in the second quarter, down from a 1.3 percent increase in the first quarter.

The wages and salaries component of the employment cost index, viewed by economists as the best measure of changes in workers' compensation, also grew by 1 percent in the second quarter, matching the increase in the prior quarter.

For the 12 months ended June 30, Americans' wages and benefits rose by 3.9 percent, a much slower pace compared with the 4.4 percent rise in the same period a year ago.

Economists predicted the sluggish economy and rising layoffs would moderate wage and benefit growth, something that also would help keep inflation contained.

In an effort to avert the first recession in the United States in 11 years, the Federal Reserve has slashed interest rates six times this year, totaling 2.75 percentage points. One of the reasons the Fed has been able to act so aggressively is because inflation has not posed a risk to the economy.

But many private economists, saying Fed policy-makers don't want to sow the seeds of inflation down the road, predict they will cut interest rates by a more conservative quarter-point at their next meeting Aug. 21.

In the jobless report, 37 states and territories reported decreases in weekly claims, while 16 reported increases. The state data lag a week behind the national figures and are not seasonally adjusted.

Wisconsin reported the largest drop, 19,380, because of fewer layoffs in the transportation, communications and service sectors.

Fewer layoffs in the transportation industry also resulted in both Michigan and Indiana seeing a large drop in weekly claims, down by 15,826 and 7,622, respectively.

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