NEW YORK (CNN/Money) - Employment costs rose 0.9 percent in the second quarter, a government report showed Thursday, less than the rate of increase in the previous quarter and in line with economists' forecasts.

The Labor Department report showed the pace of increase down from the 1.1 percent rise in the first quarter. It said rises in benefit costs accounted for a little over half of the increase in compensation costs. Benefit costs were up 1.8 percent in the period, down from a 2.4 percent increase in the first quarter. Wages and salaries gained only 0.6 percent in the period, unchanged from the first quarter gain.

The report is closely watched by economists and the Federal Reserve as an indication of inflationary pressures caused by the improving economy.

Annual compensation costs for civilian workers increased 3.9 percent for the year ended June 2004, up only slightly from the 3.7 percent gain the previous year. Wages and salary costs were up 2.5 percent over the most recent 12-month period compared with a 2.7 percent rise the previous year. Benefit costs rose 7.2 percent for the most recent 12 months, up from a 6.3 percent gain the previous year.