Labour Costs - QES & LCI, Q1
Data Flash (New Zealand)
Labour Costs - QES & LCI, Q1
Key Points: Quarterly Employment Survey (QES)
* Average ordinary time hourly earnings in the private sector rose by 0.5% qoq during Q1, following a 0.8% qoq fall in Q4. The market had expected an increase of 0.9% qoq.
* The annual rate of increase was 1.5%, up from 1.4% in Q4.
* Average ordinary time earnings in the public sector fell 0.3% qoq but rose 1.8% yoy.
Key Points: Labour Cost Index (LCI)
* Private sector ordinary time salary and wage rates rose by 0.4% qoq in Q1, following a 0.3% rise in Q4. The market had expected a rise of 0.4%-0.5%.
* The annual rate of increase was 1.4%, down from 1.5% in Q4.
* Public sector ordinary time salary and wage rates rose 0.3% qoq and 1.8% yoy.
* The simultaneous publication of the QES and LCI represents a welcome innovation. The average earnings measure published in the QES is affected by compositional changes in employment, which make interpretation of short-term trends difficult. For example, stronger than average employment growth in lower paid occupations could lead to a fall in reported average earnings even if individual wage rates across the economy increased. On the other hand, the LCI is really a proxy for unit labour costs, given that, for the purpose of compiling the index, increases in paid wages are adjusted to remove those elements that reflect a reward for improvements in productivity or a change to a higher job specification.
* Taking both outcomes together, today's data suggests that the tightening in the labour market over the past year or so has yet to feed through into rising wage costs.
* This outcome is not unexpected - leading indicator relationships suggest that a pickup in wage inflation can be expected from around Q3/2000.
* The Reserve Bank's March inflation projections assumed growth in unit labour costs of 1.4% in the year to Q1/2000 - exactly equal to the movement recorded in the LCI. Therefore, although the QES measure of wages has printed below the Bank's expectations (1.5% yoy versus the Bank's forecast of 2.3%), the Bank is likely to consider today's data as broadly consistent with its projections. The lower rate of increase in the QES data appears to reflect stronger than expected growth in relatively low paid industries (eg retail sales, cafes and restaurants).
* The QES also provides an alternative source of information on trends in employment and hours worked. The coverage of the QES is not as complete the Household Labour Force Survey (HLFS) - agriculture and fishing are not surveyed. However, the data may be more accurate, especially as regards recording movements in the number of hours worked. Firms' recollection of the number of hours they pay - based on payrolls data - is likely to be more accurate than households' recollection of the number of hours worked in a particular week.
* The QES suggests that both full-time equivalent employment and hours paid rose by 2% qoq in Q1. This contrasts sharply with the HLFS, which suggested little change in employment in full-time equivalent terms and a sharp fall in hours worked (after a sharp rise in Q4). Therefore, underlying growth in activity levels during Q1 may not have slowed to the extent suggested by some recent indicators, such as retail sales and building consents. This conclusion is consistent with the Q1 Quarterly Survey of Business Opinion which showed capacity utilisation remaining at an elevated level. QSBO indicators of activity also remained firm despite a fall in business confidence.
* Both the HLFS and the QES point to a more robust level of activity in the construction sector during Q1 than suggested by building consents data. Next week's building work put in place data will shed more light on activity in this sector.
Darren Gibbs, Senior Economist, New Zealand
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