Business confidence goes south – really

For Web Edition-Business confidence goes south-Luke ParkerLuke Parker – 

New Zealanders have become increasingly concerned about the state of the labour market with employment confidence at its lowest in two, according to the latest Westpac McDermott Miller Employment Confidence Index.

The quarterly report released last fortnight claimed that the main concern weighing on workers’ confidence levels is weakness in earnings growth.

Westpac senior economist Satish Ranchhod said that 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 that even these increases have been modest.

“According to the Labour Cost Index, wage rates only rose by 1.7% in the year to March, which is not much above the lows reached during the global financial crisis,” he said.

Tough negotiations

For Web Edition-Business confidence goes south-Satish RanchhodMr Ranchhod said that a part of the softness in wage inflation reflects that unemployment has picked up in recent quarters, which would have made it harder for workers to negotiate pay increases.

“We have 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 the purchasing power of households has actually risen strongly over the past year,” he said.

Is there light at the end of the tunnel?

Delayed rebound

According to Mr Ranchhod, workers are not 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 said.

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.

Concern tightens

For Web Edition-Business confidence goes south- Westpac LogoA recent Employment Confidence Report said that 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. 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,” the Report said.

Regional lows

Employment confidence in regional New Zealand not looking good either

For Web Edition-Business confidence goes South- Confidence TableIn 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 (or Pseudomonas syringae pv Actinidiae, a disease of Kiwifruit vine disease) and is bucking national trends in a number of ways, with strengthening retail spending, construction, and house sales,” Mr Ranchhod said.

Canterbury, the Waikato, Northland, and Southland suffered the sharpest decline in confidence.

For Web Edition-Business confidence goes South-Employment by region“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,” Mr Ranchhod said and added that a sharp decline in labour market confidence was expected 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.

Luke Parker is the Communications Executive at Westpac. The above article appeared in the Westpac Economic Commentary on July 7, 2015.

*

Photo Caption:

Satish Ranchhod

About The Author

Related posts