Little joy predicted for people out of work

Westpac expects an annual rate of wage inflation by this measure of 1.9 per cent. Photo / Filephoto

Economists expect only very moderate growth in employment to be recorded this week, matched by growth in job seekers, leaving the unemployment rate steady at 6.4 per cent.

The New Zealand Institute of Economic Research's quarterly survey of business opinion recorded a lift in hiring by firms in the December quarter, buoyed in part by post-earthquake reconstruction work in Canterbury, while hiring intentions stabilised at positive levels. Firms also reported that skilled labour was getting harder to find.

"But it is still going to be a gradual recovery," NZIER principal economist Shamubeel Eaqub said.

"The labour shortages we had going into the recession were really quite unprecedented. The level of employment didn't really come down a lot. Yes, we had some job losses right at the beginning, but quite modest - nothing like the early 1990s. So, rather than job losses, what we had was a lack of new hiring."

The flipside of that labour hoarding during the recession is a more sluggish recovery.

"Hours worked per employee are only starting to pick up now, so we would expect a lot more of that to come through. In the last count we had about 33.5 hours per week, where the long-run average is close to 35. Employers can ramp up hours for quite a bit longer before they really have to hire more staff."

The Labour Department says job advertising online continues to rise and is up more than 40 per cent from its trough in mid-2009, but that the growth has eased in recent months.

Eaqub said that for a lot of indicators it was easy to get good growth rates right now because it was off a low base.

"There are still a lot of people unemployed relative to the number of jobs advertised."

The household labour force survey, due on Thursday, has been all over the place in recent quarters.

The unemployment rate has swung from 7.1 per cent in December 2009 to 6 per cent in the March quarter, back up to 6.9 per cent in June and back down to 6.4 per cent in December.

Its employment numbers have also been volatile, recording a jump of 1 per cent or 24,000 in the September quarter, seasonally adjusted, after a fall of 4000 the previous quarter.

The consensus of market economists is a more modest rise of 0.2 per cent or 4000 in the December quarter, just enough to keep pace with the rise in the labour force, leaving the unemployment rate unchanged.

"Overall, the picture is of a labour market that troughed early last year and should continue on a gradual trend of improvement over 2011," Westpac economist Felix Delbruck said.

"Employment is up since the start of the year, hours worked have been increasing over the past three quarters, and alternative indicators of labour market slack, such as firms' reported ease of finding labour, have also improved."

Wage growth appeared to have bottomed out, Delbruck said, but the improvement would be a slow grind.

Westpac expects the labour cost index, out today, to record growth in the private sector of 0.6 per cent, in line with September, making an annual rate of wage inflation by this measure of 1.9 per cent.

Goldman Sachs economist Philip Borkin said today's data would be too early to test, one way or another, the Reserve Bank's judgment that the current spike in inflation would have no meaningful impact on wage and price-setting behaviour.