Surprising decline in employment in May

Slowdown in wage growth in line with expectations

According to the CSO data released today, the nominal wage growth in the enterprise sector employing more than 9 persons in May decreased to 7.0% YoY from 7.8% in April, slightly below our forecast (7.1%) equal to market consensus. In real terms, after adjusting for changes in prices, wages in companies increased in May by 5.2% YoY (the slowest growth since December 2017) against 6.1% in April. In our view, the main factor affecting the reduction in the annual wage growth rate was the abatement of the positive effect of increased wage increases in mining in April. We reiterate our view that in the following months annual wage growth, supported by moderate wage pressure in a number of industries, will be in the range of 7-8%.

A surprising decline in employment in May

According to CSO data, employment in the enterprise sector decreased in May by 2.1k MoM against an increase of 7.0k in April. The annual employment growth did not change in May compared to April and amounted to 3.7% YoY. The MoM decline in employment recorded in May was the deepest since 2009. The reduction in employment in May is a surprise given the continuing strong demand for labor, reflected in the numerous results of business climate surveys indicating a persisting shortage of qualified employees. In addition, the results of the May business climate survey (PMI) signaled that May was the sixth consecutive month in which there was a significant increase in employment in Polish manufacturing. Therefore, we view the May employment decline as temporary, although it may be interpreted as a signal supporting our scenario of gradual slowdown in employment growth in the coming quarters.

In the following quarters we expect a gradual slowdown in the labor market improvement and a reduction in the annual employment growth both in the enterprise sector and in the entire economy (see MACROmap of 11/6/2018). Deepening decline in investments of domestic enterprises employing at least 50 people (-6.7% YoY vs. -2.0% in Q4 2017) is in line with our scenario.

Slower growth in consumption in Q2

We estimate that the real dynamics of the wage fund (employment times average wage) in enterprises decreased in May to 9.0% YoY against 10.1% in April. This is in line with our scenario of a moderate slowdown in private consumption growth in Q2 (to 4.5% YoY vs. 4.8% in 1Q).

Today's data on wages and employment in the enterprise sector are neutral for PLN and bond yields.