NZ Labour Costs And Employment - Q4 2000

Data Flash (New Zealand)

Key Points Average hourly earnings (ordinary time) in the private sector increased by 0.5% qoq in Q4, as measured by the Quarterly Employment Survey (QES). The market had expected an increase of 0.6% qoq.

The annual rate of increase was 2.6%, up from 1.4% during the previous quarter. Average hourly earnings for overtime increased by 1.1%, lifting the yoy change from +0.4% to +4.3%.

The alternate Labour Cost Index (LCI) reported a 0.4% qoq / 1.4% yoy increase in private sector wage rates (ordinary time). The LCI adjusts for the changing composition of the labour market and for productivity growth, which suggests that it is best interpreted as a measure of unit labour costs.

13% of all surveyed wage rates were increased. The average rise of 3.6% compares with 3.1% last quarter.

The QES confirmed last week's strong HLFS result, recording a 3.4% increase in total hours paid since late 1999.

Commentary

Today's data confirmed the employment momentum that has been building over the second half of last year. Judging by the record number of job advertisements in January, the buoyancy of the labour market seems to have continued into the current quarter.

Wage pressure has, so far, remained relatively modest, although the data clearly show a developing upward momentum. With the rate of unemployment having fallen to a 12 year low of 5.6%, skill shortages close to the 1995/96 high, and high CPI inflation putting pressure on real earnings, we expect wage inflation to increase to around 4% over the coming year. The RBNZ is likely to also be concerned about the weak trend in productivity growth evident in the latest data. With GDP estimated to have increased by around 1.5% between late 1999 and late 2000, the 3.4% increase in hours worked (QES measure) suggests that productivity growth has been negative. With business sector margins already under pressure from high import costs, weak productivity growth is adding to domestic inflation risks going forward.

We believe that today's data support the conclusion that the RBNZ will consider a March cash rate easing premature. The NZ economy is obviously on a strong counter-cyclical trend compared to other economies and the RBNZ is likely to require more time in assessing the influence of the global slowdown and whether the domestic economy is in need of support from lower interest rates at this point.

Ulf Schoefisch, Chief Economist, New Zealand, (64) 9 351 1375

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