WASHINGTON, (Reuters) - U.S. labor costs increased steadily in the fourth quarter as employers boosted benefits for workers, leading to the largest annual increase in more than 10 years.
The Employment Cost Index, the broadest measure of labor costs, increased 0.7 percent after an unrevised 0.8 percent rise in the third quarter, the Labor Department said on Thursday.
That lifted the year-on-year rate of increase to 2.9 percent, the biggest gain since June 2008, from 2.8 percent in the 12 months through September.
Economists polled by Reuters had forecast the ECI rising 0.8 percent in the October-December period.
Wages and salaries, which account for 70 percent of employment costs, rose 0.6 percent in the fourth quarter after advancing 0.9 percent in the prior period. Wages and salaries were up 3.1 percent in the 12 months through December.
That was the biggest increase since June 2008 and followed a 2.9 percent gain in the year through September. A tightening labor market is gradually pushing up wage growth, with employers raising compensation to retain and attract workers.
The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack. It is also considered a better predictor of core inflation.
The Federal Reserve held interest rates steady on Wednesday but said it would be patient in lifting borrowing costs further this year as it pointed to rising uncertainty about the economy’s outlook. The U.S. central bank described the labor market as “having continued to strengthen.”
Private sector wages and salaries rose 0.7 percent in the fourth quarter after increasing 0.8 percent in the prior period. They were up 3.1 percent in the 12 months through December after rising by the same margin in the year through September.
State and local government wages increased 0.6 percent after advancing 0.9 percent in the third quarter.
Benefits for all workers jumped 0.7 percent in the October-December quarter after rising 0.4 percent in the third quarter. They were up 2.8 percent in the 12 months through December after rising 2.6 percent in the year through September.
Reporting by Lucia Mutikani Editing by Paul Simao