KEY POINTS:
The year-long recession is starting to catch up with pay rises, with official data out yesterday suggesting that wages growth has passed its peak.
Statistics New Zealand's labour cost index for the private sector rose 0.7 per cent in the December quarter, down from 1.1 per cent in September, and pulled the annual increase down to 3.2 per cent from 3.5 per cent three months ago.
The increase was slightly lower than the markets or the Reserve Bank had expected.
The quarterly increase was in line with those in the March and June quarters - 0.6 and 0.8 per cent respectively - and the unadjusted measure, which leaves in increases which reflect individual merit as well as the rate for the job, was little changed.
But ANZ National Bank economist Philip Borkin said it was increasingly clear wage growth had peaked and was likely to ease relatively quickly over coming quarters.
"With skill shortages easing quickly and headline inflation also falling, workers will have less scope to push for the strong wage increases which have become the norm over the past two years."
Wages are one of the last cabs off the rank during cyclical upswings but also one of the last things to respond to downturns.
But the Institute of Economic Research quarterly survey of business opinion in December recorded sharply lower levels of difficulty finding both skilled and unskilled labour.
These gauges of labour market conditions are now at their weakest since the early 1990s, a sharp contrast to four years of sub-4 per cent unemployment rates and acute skilled labour shortages. If history is any guide, that points to steep falls in wages growth ahead, and a steep rise in unemployment. Even so, wages in the December quarter were still growing at a faster clip than average over the past five years.
"From the point of view that rising wages provide the means for spending, this is a modest positive," UBS economist Robin Clements said.
On the other hand the quarterly employment survey (QES), also released yesterday, showed fewer workers, working shorter hours and did not bode well for the official jobs data due out on Thursday, he said.
The QES found the number of employees down 0.8 per cent from December 2007 on a full-time equivalent basis, where two part-timers are counted as one full-time worker. It was the first annual decrease since 1999.
Paid hours were down even more, 1.4 per cent on a year earlier.
Even with wages rising the net effect was that gross earnings - an indicator of the household sector's collective labour market income - rose just 4.1 per cent over 2008, down sharply from annual growth rates above 7 per cent in previous quarters.
Economists expect Thursday's household labour force survey to show the unemployment rate to have jumped to 4.7 per cent in the December quarter, from 4.2 per cent in September.
Forecasts for the end of the year are clustered around 6.5 per cent with the prospect of higher rates still next year.
ASB economist Jane Turner said the QES figures showed the sharpest falls in employment in the December quarter were in the manufacturing sector, with forestry, mining, construction and hospitality also registering falls on a seasonally adjusted basis.
"Employment was relatively flat in all other sectors except for transport, storage and communications which continued to increase strongly."
Bank of New Zealand economist Craig Ebert said an unemployment rate with a 4 in front of it would be the envy of many countries right now.
Feeling the pinch
* The labour cost index rose 0.7 per cent in December, a lot less than in September and a bit less than expected.
* The unemployment rate, due on Thursday, is forecast to jump to 4.7 per cent from 4.2 in September.
* Employee numbers and paid hours were lower than in December 2007.
