Wages and benefits paid to U.S. civilian workers grew steadily in the first three months of the year.
The Employment Cost Index, which tracks wages and benefits, was up 0.8 percent in the first quarter, the Labor Department said Friday, That's the biggest quarterly growth since December 2007 and slightly faster than the 0.5 percent growth in the last quarter of 2016.
Wages and salaries, which account for 70 percent of compensation costs, rose 0.8 percent. Benefit costs, which cover pensions and health insurance, increased 0.7 percent.
The index has shown steady improvement as the U.S. unemployment rate has fallen to 4.5 percent. The modest advance in the first quarter indicates that wage gains haven't accelerated to a pace that would worry the Federal Reserve about inflation. A recent Fed report showed that overall wage increases remained modest, although businesses were being forced to offer bigger increases to workers with skills that are in short supply.
"Overall, moderate employment growth is finally starting to mean moderate compensation growth for employees, which is the raw material for personal income which, in turn, supports consumer spending," said an analyst report from Contingent Macro Research.
That would be helpful in the months ahead for the overall economy, which grew a lackluster 0.7 percent in the January-March quarter largely because consumers spent sharply less.
Compensation for state and local government workers grew 0.6 percent, matching the previous quarter's gain. Among private sector workers, compensation grew 0.8 percent, compared to 0.5 percent in the fourth quarter.
In the past year, salaries and benefits for all civilian workers have risen 2.4 percent. That's better than the 2.2 percent for last quarter, but below the roughly 3.5 percent generally considered consistent with a healthy economy.
For the 12 months ending in March 2016, wage and benefit growth was 1.9 percent.
Among private industry workers, those employed in sales, construction, aircraft manufacturing and retail showed the largest compensation increases.