Wage growth still slowing, but signs of economic stability

New employment figures are seen as an indication wage growth is moderating further, although also including some tentative evidence the economy is stabilising.

The data published today by Statistics New Zealand (SNZ) shows worker earnings rising at the slowest rate in seven years.

The labour cost index (LCI) put salary and wage rates (including overtime) 2.1 per cent higher in the September quarter than a year earlier. That was the lowest annual rise since the December 2002 quarter, SNZ said.

In the September quarter, salary and wage rates (including overtime) rose 0.5 per cent, following a 0.3 per cent increase in the June quarter.

The quarterly employment survey (QES), also published today, showed that in the year to September full-time equivalent employees fell 3.5 per cent, while filled jobs were down 2.6 per cent.

Seasonally adjusted gross earnings rose 1.6 per cent for the year to September, while seasonally adjusted total paid hours fell 3 per cent.

The average total hourly earnings for the year to September rose 4.9 per cent, according to the QES.

For the September quarter, seasonally adjusted total paid hours rose 0.2 per cent from the previous three months to 49 million, full time equivalent employees fell 1 per cent to 1.29m, and filled jobs were down 0.8 per cent to 1.66m.

Seasonally adjusted total gross earnings rose 1.8 per cent from the June quarter to $1.24 billion.

ASB chief economist Nick Tuffley said that, ignoring the volatile QES survey, wage growth was showing clear evidence of moderating, although not quite to the extent expected.

For the second quarter in a row, labour cost growth was muted in the private sector, while public sector wage growth was less affected by the recession.

The continued decline in wage growth reinforced that the recession was still exerting some downward pressure on inflation, Mr Tuffley said.

But the 0.2 per cent rise in seasonally adjusted paid hours in the QES was the first quarterly rise since June 2008, and further tentative evidence the economy was stabilising.

The Reserve Bank would likely see the modest labour cost growth as reinforcing its view that there was no hurry to lift the official cash rate (OCR) until the second half of 2010.

He still expected the first OCR hike in April.

TD Securities senior strategist Annette Beacher said there was always a risk that data this week would be soft, apparently justifying the Reserve Bank's interest rate stance.

"However this data is old and lagging. Fresher news is the pickup in home sales, house prices, migration inflow and business `own activity', which suggest GDP growth of over 3 per cent by this time next year," she said.

Her view remained that a higher cash rate was on the agenda from the first quarter of 2010, with the first tightening as soon as January.

QES average earnings statistics reflect not only changes in pay rates, but also compositional and other changes across and within the paid workforce.

In comparison, the LCI measures changes in salary and wage rates for a fixed quantity and quality of labour input.

The QES and LCI data paves the way for the September quarter Household Labour Force Survey results, including the unemployment rate, to be published on Thursday.

- NZPA