Deutsche Bank Latest Research - Economic Note (NZ)
Economic Note (New Zealand) NZ Quarterly Employment Survey - June
Average ordinary time hourly earnings in the private sector (the Reserve Bank's wage forecast variable) increased by 0.7% during the June quarter, following a 0.3% increase in the March quarter.
The annual rate of private sector wage inflation was 2.3% in June, down from the increase of 2.7% in the March 1999 year. This was the lowest annual increase since the June quarter 1995.
The rise in private sector ordinary average hourly earnings of 0.7% for the June quarter was below average market expectations for a 0.9% qoq increase. With the RBNZ's latest projection for annual wage inflation of around 2.6% in the March 2000 quarter, these data are likely to have been marginally below the Bank's projection as well, suggesting slightly less inflationary pressures from labour market activity than anticipated in the August MPS.
Within the total, the health & community services and property & business services made the largest contributions to the increase for the quarter. However, the contribution from the health and community services & education industries reflected a rise in the number of hours paid for in this group, rather than an increase in wage rates - this group has a higher than average wage rate. The increase in property & business services wages was driven by a reasonably sharp rise in the computer services industry and probably reflects the impact of Y2K related demand.
While these data in isolation are unlikely to result in a downward revision to the Bank's forecast wage profile, the softer bias reinforces Deutsche Bank's belief that the Reserve Bank is unlikely to raise the official cash rate at their September 29th review. Nevertheless, looking further ahead, somewhat offsetting the reasonably modest wages outturns, the Household Labour Force Survey (HLFS) has indicated a reasonably early rebound in employment growth and a relatively low peak in the unemployment rate. Moreover, the continuing trend increase in the ANZ job ads series also suggests an on-going improvement in employment prospects.
Further confirmation that labour market conditions may be somewhat tighter than suggested by the QES data has been evident in recent Labour Department wage settlement figures. In particular, average movements in June quarter wage contracts showed an increase of 2.4%. This compares with wage settlements of around the 1.9% level in early 1999 and a trough of 1.6% in the fourth quarter of 1998. Moreover, the distribution of settlements has also moved higher, with a greater proportion of settlements appearing in the 2-4% and 4% plus range. These data, together with survey evidence indicating a growing difficulty in finding skilled labour, suggests some upside risk to the RBNZ's wage profile over the policy relevant one-to-two year time horizon.
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