Labour market data could have an upside

A batch of labour market figures out this week will be watched more closely than usual.

There are two reasons for this: one is to see whether the underlying economic recovery is feeding through into hiring and wages. Anecdotal evidence thus far suggests that, a few specific areas aside; it is not yet doing so.

But the other reason is because Reserve Bank governor Alan Bollard made it clear last week the labour market will be a major factor in when, and how quickly, he raises the official cash rate.

Last week’s unusually short, almost curt, statement from the central bank warned that “wage and price setters” would need to show restraint.

Today will see the release of the labour costs index and the quarterly employment index, while Thursday will see the release of unemployment data contained in the household labour force survey.

The figures will show whether wage pressures are starting to emerge and will also be scrutinised closely because it is the first such batch of figures since the February Christchurch earthquake.

Some fairly chunky rises are forecast by economists, whose average forecast for private sector wages and salaries for the three months to June 30 is 0.5%, while quarterly earnings are forecast, on average to rise by 0.8%.

The first of these is “crucial” says Bank of New Zealand economist Doug Steel, who pointed out that historically, an annual rise of 2% in private sector earnings usually translates into consumer price index (CPI ) inflation running at the top of the Reserve Bank’s target band of 1-3%.

That need not be a bad thing, he said, so long as rises in wages are backed by rises in productivity.

“This is the sort of wage growth that sticks, does not spill over into general price rises, and thus allowing the Reserve Bank to refrain from lifting interest rates.”

The figure which will produce the most political heat, though will be the unemployment data on Thursday.

Indications are this is falling – ANZ Bank chief economist Cameron Bagrie noted today that the numbers of registered unemployed has fallen by nearly 6000 over the quarter, and although this does not capture all the unemployed, it does indicate a clear change in the labour market and the wider economy.

A clear sign the Labour Party is getting its own retaliation in first also came today from the party’s finance spokesman, David Cunliffe, who put out a press release saying the official figures are unreliable.

The average forecast for Thursday’s unemployment figure is for the rate to hold steady at 6.6% but the range of forecasts is wide – from a drop to 6.3% to a rise to 6.9%.