Wages lose momentum

By BRIAN FALLOW

Wage growth slowed even more than expected in the final three months of last year.

Statistics New Zealand's quarterly employment survey showed private sector average ordinary time hourly earnings were 0.3 per cent up on the previous quarter, the lowest increase for a year-and-a- half and only half the rise market economists had forecast.

But Deutsche Bank chief economist Ulf Schoefisch said that when adjusted for seasonal variations the wage growth was more like 0.7 per cent, which was in line with that of the two previous quarters.

That was somewhat surprising, he said, as unemployment was at 13-year lows and consumer price inflation had been relatively high.

Annual wage growth was down on the September quarter's 3.4 per cent, and at 3.3 per cent was below the 4 per cent forecast by the Reserve Bank in November.

Mr Schoefisch said that the bank would have taken some comfort from the modest wage growth but it appeared to have under-estimated the momentum in the real economy.

Evidence of that momentum was the increase in the number of full-time equivalent employees (two part-timers count as one full-timer), which rose 2.7 per cent in the quarter, or 1.7 per cent, seasonally adjusted.

Paid hours rose 3.3 per cent in the quarter, or 1.2 per cent on a seasonally-adjusted basis.

The annual growth in filled jobs rose to 3.3 per cent from 1.8 per cent three months earlier.

The quarterly employment survey, which questions businesses, is not the preferred measure of employment growth; figures due on Friday from a survey of households are.

But such strong indicators of buoyancy cannot be discounted altogether, economists said yesterday, as they hastily lowered their forecasts for the unemployment rate before Friday's announcement.

Job advertisements, despite an upturn in January, have been falling and the NZIER's survey of business opinion found firms' employment intentions were flat.

It also found an easing in the reported difficulty of finding skilled labour, a harbinger of weaker wage growth.

"Wage growth has peaked and employment growth will ease over this year, but last year ended with a decent bang," said WestpacTrust chief economist Adrian Orr.

Mr Schoefisch said that even assuming strong economic growth in the December quarter - his pick is 1 per cent - yesterday's employment and paid hours figures pointed to a weak quarter for productivity.

"That suggests that the lower than expected wage increases did not fully translate to lower growth in business costs."

The labour cost index, an indicator of unit labour costs, increased 0.5 per cent in the quarter, making the annual figure 2.1 per cent.

The average increase in private sector wage rates was 4 per cent.