Uncertainty around unemployment, wage data

Unemployment and wage data out this week are likely to cause their usual amounts of uncertainty about the state of the economy.

The economy weakened over the September quarter, as did indicators of the labour market.

However, the June quarter employment and unemployment figures were probably "too bad to be true", and on balance, economists are expecting some payback from the weakness.

Tomorrow, the Labour Cost Index and the Quarterly Employment Survey will be released, followed on Thursday by the Household Labour Force Survey, the official measure of unemployment.

Westpac economist Felix Delbruck favoured the LCI as a preferred measure of wage inflation because it was "purified" of changes in the job mix and in labour productivity.

The quarterly survey's average wage was both harder to pick and less meaningful as it was heavily affected by changes in the mix of jobs in the economy and in the survey sample.

Westpac was forecasting wage growth in all sectors, excluding overtime, to have risen 0.6% in the three months ended September to give annual wage growth of 2%. Private sector wage growth was forecast to have grown 2.1% annually excluding overtime and 2.5% including overtime. Private sector wages as measured by the quarterly survey are forecast to have grown by 0.8% in the quarter and 2.4% annually.

"There is nothing to suggest a strong updrift in wage growth right now, pockets of strength in Canterbury aside. While there's some reason to think the 'trend' rate of unemployment has dried up as a result of the Canterbury earthquakes, unemployment well above 6% is north of a trend."

Inflation expectations had fallen and LCI wage inflation was expected to be below its seasonal average for the September quarter, Mr Delbruck said.

The Household Labour Force Survey was hard to forecast at the best of times and surprises almost invariably got a market reaction.

With the economy undergoing significant shifts in composition, New Zealand was experiencing unusually uncertain times, he said.

Westpac was forecasting an unemployment rate of 6.7% for September, down slightly from 6.8% in June. The participation rate was expected to have gone up slightly to 68.5% but hours worked were expected to have fallen 1.1%.

Increasingly, there was a two-speed economy and labour market, and that could be affecting the business surveys used as labour market indicators, Mr Delbruck said.

Canterbury reconstruction was accelerating rapidly while other regions and industries were sagging.

"There's a risk that the surveys are understating that localised strength - they count the responses of businesses not how many people those businesses are hiring or firing."

September forecasts

• Employment growth: 0.8%
• Unemployment: 6.7%
• Hours worked: -1.1%
• Wage growth: 2%


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