New Zealanders have become increasingly concerned about the state of the labour market with employment confidence now the lowest it’s been in the past 2 years, according to the latest Westpac McDermott Miller Employment Confidence Index.
The quarterly report released at the end of June claims the main concern that’s weighing on workers’ confidence levels is weakness in earnings growth.
Westpac senior economist Satish Ranchhod says among respondents surveyed, the proportion of workers who received a pay increase over the past year has fallen to its lowest level since 2010 - and even these increases have been pretty modest.
“According to the Labour Cost Index, wage rates only rose by 1.7% in the year to March, which isn't much above the lows reached during the global financial crisis.”
Ranchhod says part of the softness in wage inflation reflects that unemployment has picked up in recent quarters, which will have made it harder for workers to negotiate pay increases.
“In addition, we've also had very low consumer price inflation over the past year. This has meant that cost of living adjustments to wages have been limited. However, it has also meant that households’ purchasing power has actually risen strongly over the past year.”
Is there light at the end of the tunnel?
Ranchhod says workers aren't expecting things to get much better anytime soon.
“The proportion of respondents expecting wage increases over the coming year is at its lowest level since 2009. This is of particular concern as we've seen petrol prices pushing higher recently, which is eroding households’ purchasing power.”
He says on top of this, the fall in the New Zealand dollar will push up the prices for a range of imported goods over the coming months.
According to the recent Employment Confidence Report, in addition to concerns around pay increases, workers have also become more nervous about their employment prospects.
“Perceived job security has fallen from already below average levels,” Ranchhod says. “Workers have also reported heightened concerns about the current availability of jobs, as well as the likelihood of finding a job over the coming year.
“These survey measures have tended to have a close relationship with the unemployment rate, and suggest that we're unlikely to see a significant improvement in unemployment in the near term.“
Employment confidence in regional New Zealand not looking good either
In regional New Zealand, the outlook is just as bad with employment confidence falling in every region bar the Bay of Plenty which is largely unchanged at slightly below-average levels.
“The Bay of Plenty is currently in recovery after the devastation wrought from Psa and is bucking national trends in a number of ways, with strengthening retail spending, construction, and house sales,” Ranchhod says.
Canterbury, the Waikato, Northland, and Southland suffered the sharpest decline in confidence.
“This likely reflects the deterioration in the outlook for dairy export earnings in recent months. In the case of Canterbury, signs that rebuild activity is approaching its peak may also be playing a role.”
He says there was also a sharp decline in labour market confidence in Wellington, with workers noting particular concern around earnings growth. This may reflect the very low level of wage growth in the public sector.
“According to the Labour Cost Index, wage rates in the public sector rose by only 1.2% in the year to March - roughly half the average seen over the past decade.”
See June Westpac McDermott Miller Employment Confidence Index for full report.