New data to show wage growth still missing in action

Have pay packets been getting any fatter? Not much, economists say. NZH File Pic.

Economists don't expect new Government policies around Fair Pay and minimum wages will have any impact on wage inflation when employment data is released this week.

Wage growth is expected to have remained modest in the first three months of the year at an annual rate of around two per cent.

That is despite historically low levels of unemployment - tipped to come in at an annual rate of between 4.2 and 4.4 per cent.

Unemployment has been tracking at 4.3 per cent annually.

ANZ economists see it stuck at the same level, Westpac is picking a slight up-tick, to 4.4 per cent, and ASB sees it dipping to 4.2 per cent.

"Low business confidence appears to have led to a slower pace of hiring," writes Westpac senior economist Michael Gordon.

In contrast ASB is picking that the labour market will have tightened slightly, citing employer indications in the Quarterly Survey of Business Opinion which pointed to more skills shortages.

ANZ economists have picked unemployment to remain flat at 4.3 per cent although they acknowledge risks in either direction depending on the flow through from business confidence.

Regardless, it looks set to remain at levels which economists often describe technically as "full employment".

That has led to some debate as to why wage growth has remained so subdued. In fact it has been a major source of economic uncertainty globally as well as locally.

"More significant government-related increases are likely to come later in the year," Westpac's Gordon says.

"Wage growth tends to lag the broader economic cycle. Even if the demand for new workers is fading, there appears to be enough accumulated pressure in the labour market to support a pickup in wage growth over the next couple of years."

ASB's Mark Smith described this year as a pivotal one for wage trends.

"Our view had been that stretched labour market capacity and the boost to wages provided by minimum wage increases and moves towards more Fair Pay agreements would be sufficient to trigger a generalised firming in overall wages," he wrote.

"The failure to date for wages to come to the party has challenged that view."

Wednesday's data could also influence what the Reserve Bank will do with interest rates a week later (May 8) when it delivers its next Monetary Policy Statement.

"Continued weakness in wage inflation despite close to full employment will be difficult for the RBNZ to shake off, wrote ASB's Smith.

The market is currently pricing in a 50 per cent chance of a 0.25 per cent rate cut.

A weaker than expected employment and wage number would add to the rate cut pressure in the wake of the lower than expected Consumer Price Index figure last week.

"A stable or slightly lower unemployment rate should set the scene for the RBNZ to deliver a downward-sloping OCR track at the May MPS, in line with our expectation for an August rate cut," ANZ economist Michael Callaghan wrote.

"A higher unemployment rate and subdued wage inflation would add to the risk of a rate cut as soon as May."