Earnings growth slows, hours worked fall in June

Earnings growth slowed and hours worked fell in the June quarter as recession continued to bite into the economy, figures published today by Statistics New Zealand (SNZ) show.

Westpac economists Brendan O'Donovan and Donna Purdue said rising unemployment and lower inflation were clearly taking a toll on pay rates.

Labour cost index (LCI) wage data came in weaker than expected, with the Reserve Bank's preferred measure of private sector all salary and wage rates rising just 0.3 per cent in the June quarter.

Annual wage growth slowed to 2.7 per cent in the second quarter of 2009, its slowest pace since June 2005.

The details of the LCI told a "sombre" story, the Westpac economists said.

A small proportion of workers usually had wage increases in the June quarter, and this time only 10 per cent of workers received an increase, the lowest proportion since mid-1995.

Of those who did receive an increase, the mean was just 3.9 per cent, the lowest since December 2004. The median increase was 3.6 per cent, down from 4 per cent in 2007 and 2008, and the lowest since 2005.

"Thus, the scene is set for even weaker wage growth as the bulk of employees receive their pay increases later in the year."

Westpac was forecasting growth in annual private sector all salary and wage rates slowing from the 2.7 per cent now to 1.8 per cent by next March.

In the quarterly employment survey (QES), also published today, private sector ordinary time hourly earnings rose 0.7 per cent quarter-on-quarter, to be 3.8 per cent higher than a year ago.

But that was a biased measure, as lowest-paid workers were most likely to lose jobs during downturns, leaving those earning relatively high wages more heavily represented in the average wage calculation, the Westpac economists said.

Jobs continued to be hard hit, with full time equivalent (FTE) jobs falling 1.1 per cent in the quarter, seasonally adjusted, to be 3.2 per cent lower than a year ago.

ASB economists Nick Tuffley and Jane Turner said today's data showed wage inflation pressures were abating faster than expected.

"Firms and workers are in part responding to falling economic demand by containing wage increases or even freezing wages," the ASB economists said.

The jobs-related figures in the QES suggested weak employment and less work being done in total.

Seasonally adjusted total paid hours fell 1.2 per cent in the June quarter, and 3.4 per cent in the year to June.

By industry, manufacturing had reported substantial declines in hours paid and jobs filled in the past year, the ASB economists said.

Construction was also heavily affected, although job losses appeared now to be stabilising. Wholesale trade, finance and insurance and the hospitality industry had also seen a significant reduction in hours paid.

In contrast, property and business services had seen a steady rise in hours paid and jobs filled, while employment in education, health and community service remained reasonably steady.

Markets are now looking to the household labour force survey on Thursday, which includes the unemployment rate.

- NZPA