Labour Costs and Employment (Q3 2001)
Data Flash (New Zealand)
Labour Costs and Employment (Q3 2001)
As measured by the Quarterly Employment Survey (QES), average hourly earnings (ordinary time) in the private sector increased by 0.8% qoq in Q3. This result was a little weaker than market expectations of a 1.0% qoq rise. In seasonally adjusted terms, growth of 0.6% qoq was recorded, down from 0.8% qoq in Q2 and 1.1% in Q1. The annual movement was 3.4%.
Including overtime, private sector wages rose 0.7% qoq. Overtime wage rates fell 1.1% qoq following a 5.9% qoq surge in Q2, and were 4.5% higher than a year earlier.
Average hourly earnings in the public sector (including overtime) rose 2.1% qoq to be 3.9% higher than a year earlier.
The combined wage movement (including overtime) in the private and public sectors was 1.1% qoq and 3.4% yoy.
The alternate Labour Cost Index (LCI) reported a 0.5% qoq / 2.0% yoy increase in private sector wage rates (ordinary time). Of the private sector salary and ordinary time wage rates that rose, the average increase was 3.8%. The LCI adjusts for the changing composition of the labour market and for productivity growth, and thus is best interpreted as a measure of unit labour costs.
Employment and Hours Paid
Adjusting for seasonal factors, the QES recorded a 0.1% qoq increase in full-time jobs and a 0.4% qoq increase in part-time employment. Overall full-time equivalent employment rose 0.1% qoq in Q3 following a 1.1% qoq rise in Q2 and was 2.3% higher than a year earlier.
Similarly, adjusting for seasonal factors, the QES recorded a 0.3% qoq increase in paid hours, following a 1.8% qoq surge in Q2. Total paid hours in Q3 were 2.7% higher than a year earlier.
The growth in wage rates during Q3 was a little weaker than we expected (on the QES measure). In our July Economic Forecasts, we had projected annual wage growth to peak at just over 4% around mid 2002, but today's outcome, together with the weaker economic outlook that we now envisage, suggests that a peak of 4% will prove closer to the mark. Total wage inflation over the two years to March 2003 appears likely to track in line with the revised assumption contained in the RBNZ's August Monetary Policy Statement.
As the charts below suggests, the QES employment growth and hours paid results are broadly in line with our forecasts for this Thursday's more widely followed Household Labour Force Survey (HLFS) (if anything, just a smidgen weaker). We expect the HLFS to indicate employment growth of 0.4% qoq in Q3. Provided that the labour force participation rate increases in line with the strengthening in labour demand, the unemployment rate is expected to decline to 5.1% from 5.2% in Q2.
Our current estimate is that the economy grew by 0.6% qoq in Q3, following growth of 2.0% qoq in Q2. Given the relatively weak growth in employment and hours paid, this indicates positive productivity growth in the quarter. As the charts below show, the QES data implies that, over the past year, the economy has experienced a very strong cyclical downturn in productivity and a very sharp cyclical upswing in unit labour costs. This cycle may now be turning up, with low levels of business confidence likely to encourage employers to take a more cautious approach to recruitment.
In our view, the economy is currently operating a little above the level consistent with stable medium-term inflation. However, with the global economy now in recession, following a robust Q3, we think that GDP growth will fall below trend - possibly by a significant margin - over the coming 12 months. This should help to eliminate the excess demand pressures that would otherwise have resulted in a rise in core inflation pressures over the coming year. Looking ahead to 14 November, we find nothing in today's release to change our view that the RBNZ will share the market's conclusion that a 50bps easing in the OCR is appropriate, especially given that the subsequent policy review is not scheduled until 23 January.
Darren Gibbs, Senior Economist, New Zealand
This, along with an extensive range of other publications, is available on our web site http://research.gm.db.com
Please do not respond to this mailbox. If you need to update your contact information or request new research, contact your Deutsche Bank Sales Contact.