U.S. labor costs rise, jobless claims dip

U.S. labor costs recorded their biggest gain in more than 51/2 years in the second quarter, and a gauge of trends in the jobs market fell to an eight-year low last week, bolstering the economy's outlook.

Though economists cautioned against reading too much into the rise in the employment cost index, they said a tightening jobs market suggested wage growth would soon accelerate significantly.

The Employment Cost Index, the broadest measure of labor costs, rose 0.7 percent. That was the largest gain since the third quarter of 2008. It is one of Federal Reserve Chair Janet Yellen's favorite labor market gauges and is being closely watched for clues on the timing of the first interest rate increase from the U.S. central bank.

Fed officials on Wednesday acknowledged the improvement in labor market conditions, but said "significant underutilization of labor resources" remained.

In another report, the Labor Department said the four-week average of initial claims for state unemployment benefits, which irons out week-to-week volatility, fell 3,500 to a seasonally adjusted 297,250 last week, the lowest level since April 2006. While overall claims increased 23,000 to 302,000 last week, that reflected difficulties smoothing out volatility from the data around this time of the year because of automobile plant shutdowns for retooling.

"The pace of layoffs is slowing, reflecting the need on the part of companies to retain more workers in the context of improving economic activity," said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.

The economy rebounded strongly in the second quarter after contracting in the first three months of the year.

Growth is expected to remain on a faster path for the rest of the year.

Separately, the Chicago Business Barometer dropped 10.0 points to 52.6 in July, the lowest level in just more than a year. Managers, however, viewed the downturn, which was the largest since October 2008, as a lull rather than the start of a new downward trend.-- Reuters