US labour costs increased steadily in the first quarter as a jump in transportation and manufacturing wages was offset by small gains elsewhere, pointing to moderate inflation pressures even as the labour market tightens.
Other data on Tuesday showed a rebound in consumer confidence this month amid growing labour market optimism. While house prices increased at their slowest pace since 2012 in February, slowing house price inflation is stimulating demand for homes.
The signs of the economy's brightening prospects and benign price pressures came as Federal Reserve officials began a two-day policy meeting on Tuesday.
The US central bank in March dropped its forecasts for any rate increases this year citing cross currents facing the economy, halting a three-year policy tightening campaign. The Fed raised borrowing costs four times in 2018.
Inflation has retreated further from the Fed's 2 percent target, catching the attention of President Donald Trump who has urged the central bank to cut rates.
The Employment Cost Index, the broadest measure of labour costs, rose 0.7 percent after advancing by the same margin in the fourth quarter, the Labour Department said. That lowered the year-on-year rate of increase in the ECI to 2.8 percent. Labour costs rose 2.9 percent in the fourth quarter, which was the largest gain since June 2008.
The first-quarter rise in the ECI was in line with economists' expectations. The ECI is widely viewed as one of the better measures of labour market slack. It is also considered a better predictor of core inflation.
The government reported on Monday that the personal consumption expenditures (PCE) price index excluding the volatile food and energy components increased 1.6 percent in the 12 months through March, the smallest increase since January 2018 and down from 1.7 percent in February. The so-called core PCE index is the Fed's preferred inflation measure. In separate report on Tuesday, the Conference Board said its consumer confidence index rose to a reading of 129.2 this month from 124.2 in March. That jump strengthened the view that consumer spending will accelerate after growing at its slowest pace in a year in the first quarter.
In the first quarter, wages and salaries, which account for 70 percent of employment costs, increased 0.7 percent after rising 0.6 percent in the prior period. Wages and salaries were up 2.9 percent in the 12 months through March. That followed a 3.1 percent gain in the year through December.
There were strong wage gains in the manufacturing, construction and transportation industries, but compensation slowed in the professional and business services, education and health services sectors as well as in the leisure and hospitality industry.
A third report on Tuesday showed the S&P CoreLogic Case-Shiller composite home price index of 20 US metropolitan areas rose 3.0 percent in February from a year ago. That was the smallest gain since September 2012 and followed a 3.5 percent increase in January.
Growth in house prices has slowed from as high as 6.8 percent in March 2018. The moderation in prices followed an ebb in demand after mortgage rates spiked last year. Mortgage rates have since declined. That, together with lower prices, is helping stimulate demand for homes, though supply remains tight. A fourth report from the National Association of Realtors showed contracts to buy previously owned homes rebounded 3.8 percent to an eight-month high in March after dropping 1.0 percent in February.