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Employment cost index rises 1.3%

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The Labor Department reported that the employment cost index, which measures the cost for all civilian workers, jumped 1.3% in the first quarter of 2003, matching the highest gain in employment costs since the second quarter of 1990.

The 1.3% rise was well above economist's forecast as renegotiated labor contracts that priced in generous benefits gained 2.2% (+6.1% year-over-year) and marked the biggest gain since the first quarter of 1988.

Wages and salaries were up 1%, the largest jump in two years, while private-industry compensation rose 1.4%, after rising 0.7% in the fourth quarter.

While the quarterly employment cost index has been rising, over the past 12 months, civilian compensation is showing no acceleration, up just 3.9% in the latest period, the same as a year ago, but down 4.1% compared to two-year earlier.

However, benefits costs brought on by rising health insurance and other-like benefits surged 6.1% over the past 12 months, after rising a more modest 4.9% over a 12-month period in March 2002.

Despite the rather sharp rise in the ECI, stock futures have been building mornings gains with S&P futures (sp03m) gaining 3.4 points to 917. NASDAQ futures (nd03m) are higher by 6 points at 1,113, while Dow futures (dj03m) are posting a 38-point gain to 8,480.

Treasuries are finding selling this morning, and while prices weakened after this morning's economic data with the 10-year Treasury falling 2/32 to 99 25/32, this morning's drop lower at the bond market's open is largely attributed to bond traders readying for details on quarterly debt issuance and some key economic data later this morning and into the week. The June 5- year Treasury futures contract (fv03m) $113'070 -0.18% is off 6/32 as the longer-dated 30-year Treasury June futures contract (us03m) $113'07 -0.24% is down 9/32. The 10-year June futures contract (ty03m) $114'155 -0.22% is lower by 9/32, with the benchmark bond's YIELD ($TNX.X) rising 4 basis points to 3.94%.

In forex trade, the dollar/yen was trading at 120.15 yen, near unchanged. Against the Swiss franc, the dollar was up 0.22% at 1.3639 francs. Euro/dollar was flat with the single unit currency recently valued at $1.1029. The U.S. Dollar Index (dx00y), which is a price-weighted index that measures the dollar against a basket of 7 major foreign currencies is gaining 0.09 at 98.76.

A quick look at the June Gold futures (gc03m) 332.70 -0.59 shows June gold falling $2, while June Light, Sweet Crude (cl03m) edges down $0.15 at $25.34.

With the dollar seeing fractional gains and gold finding fractional losses in the futures market, this morning's stronger- than-expected ECI doesn't appear to have found a knee-jerk reaction of an inflation trade.

Later this morning, the Conference Board's April Consumer Confidence will be released at 10:00 AM EST. Economists are forecasting a reading of 70.0, which compares to March's 62.5 reading.

Jeff Bailey

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