'97 GOOD FOR U.S. WORKERS; WAGES, BENEFITS UP, BUT INFLATION LOOMS.

Byline: Martin Crutsinger Associated Press 

Americans' wages and benefits rose in 1997 at the fastest clip in four years, good news for workers but a troubling sign of inflationary pressures down the road.

The Labor Department reported that its Employment Cost Index, considered the best measure of changes in wages and benefit costs, rose 3.3 percent last year, a significant acceleration from gains of 2.9 percent in 1996 and 2.7 percent in 1995.

Wage and benefit pressures were increasing as the year ended with a 1 percent jump in compensation costs in the final three months of 1997, the sharpest quarterly advance in five years.

``Wage compensation is definitely accelerating in tight labor markets all around the country,'' said Allen Sinai, chief economist at Primark Decision Economics in New York. ``This will present a challenge for companies to find ways to offset the increasing costs.''

In a separate report, the Conference Board said consumer confidence dropped sharply in January from a record high in December. The decline in the index to 127.3, down from 136.2, was blamed by the business-backed research organization on ``continuing uncertainties'' stemming from the Asian financial crisis.

The inflation-sensitive bond market reacted negatively to the jump in wages and fringe benefits, with falling demand pushing the yield on the Treasury's benchmark 30-year bond up to 5.95 percent.

Stock prices, however, ignored the labor price report, preferring to focus on better-than-expected earnings for several blue-chip companies. The Dow Jones industrial average was up 102.14 points Tuesday.

Through most of the current seven-year economic expansion, wage pressures have been remarkably well-behaved even as unemployment rates have fallen to levels not seen in 25 years. The unemployment rate in December was 4.7 percent.

Last fall, Federal Reserve Chairman Alan Greenspan warned that it ``strains credibility'' to expect the benign combination of low unemployment rates and low wage pressures to last forever. He called inflation coming from tight labor markets one of the biggest threats to continued economic growth and left no doubt that the Fed would quickly move to raise interest rates at the first sign of trouble.

However, economists said Tuesday they did not expect the latest employment report to trigger any Fed rate increases, given the financial crisis in Asia, which is expected to slow U.S. growth.

``Unless there is a significant jump in consumer prices stemming from the higher wage pressures, the Fed is not going to step in and raise interest rates because of what is happening in Asia,'' said Cynthia Latta, senior economist at DRI-McGraw Hill Inc.

Inflation as measured by consumer prices rose just 1.7 percent last year, the best showing in 11 years. The 1 percent quarterly increase in compensation costs was slightly higher than had been expected, and the 3.3 percent year-over-year increase was the biggest since 3.5 percent in 1993.

Wages and salaries, the biggest component of compensation, were up 3.8 percent last year, compared with a 3.3 percent gain in 1996. Fringe benefits, primarily health insurance and pensions, rose 2.1 percent for the year, up slightly from a 2 percent increase in 1996.

However, for the fourth quarter, fringe-benefit costs were up 0.9 percent, far ahead of the 0.4 percent increase in the third quarter.