Pay creeps up 1.9 per cent in static labour market

Wage and salary earners' combined pay grew just 1.9 per cent last year, the result of fewer employees, shorter hours and pay rises that were the exception and not the rule.

In 2008, by contrast, this indicator of incomes from Statistics New Zealand's quarterly employment survey had grown 4.1 per cent, and over the two boom years before that by an average of 8 per cent.

Its companion survey, the labour cost index, recorded a rise of just 0.3 per cent in private sector salaries and ordinary time wage rates in the December quarter, making an annual increase of 1.5 per cent, its lowest for nine years.

The implications of this meagre income growth for retailers and other businesses chasing the consumer dollar are being compounded by a shift in households' behaviour away from borrowing and towards saving and reducing debt.

"Whether it continues remains to be seen," said Goldman Sachs JB Were economist Philip Borkin. "But at the moment those headwinds, in terms of income growth, are seeing households look at saving more, which is a healthy dynamic but for retailers ... it means a bit of a challenge for a while yet."

BNZ economist Craig Ebert said there were few signs the labour market had finished slackening just yet.

On a seasonally adjusted basis the number of filled jobs fell 0.3 per cent in the quarter, he said, and a similar decline in paid hours was another sign the economy had failed to pick up with any oomph in the closing stages of last year.

ASB chief economist Nick Tuffley said the improvement in hiring intentions in business surveys suggested the labour market was near its trough. "In line with this, we expect a recovery in employment this year," he said.

"And we would expect to see some gradual recovery in wages ... as last year's wage freezes are relaxed and the labour market tightens a bit, at least in skilled occupations."

Wages are among the last things to respond to rises and falls in the economic cycle so the weakness in yesterday's numbers did not come as a surprise to economists. Often the best thing they could find to say about them was that things were not getting worse as fast as they had been.

Paid hours were down 0.3 per cent for the quarter and 1.8 per cent for the year. That was a smaller annual fall than in any of the previous four quarterly surveys. But it was still a decline.

Economists expect a recovery in hours worked to precede a lift in employment, as many firms preferred to spread the pain of weak demand during the recession by cutting hours rather than staff, and are expected to reverse the process as the economy recovers.

The proportion of pay rates which has not increased over the past year, 56 per cent, was the highest for at least the past 10 years, and the proportion getting a rise of 3 per cent or more, 29 per cent, was the smallest since 2002.

The Reserve Bank's preferred measure of wage inflation, which includes overtime rates, was 1.6 per cent over the full year, a touch below the 1.7 per cent the bank had forecast, but it expects the rate to fall further in the first half of this year so that is not expected to make any difference to its overall view of the outlook.