Record-high consumer optimism despite a drop in employment

Wage dynamics in May in line with the medium-term trend

According to GUS data published today, nominal wage dynamics in the sector of enterprises employing above 9 people amounted to 7.7% YoY in May vs. 6.8% in April, significantly above our forecast (6.8%) and market consensus (7.2%). In real terms, corporate wages, adjusted for the changes in prices, rose by 5.2% YoY in May vs. 4.8% in April. The main factor behind higher wage dynamics in May were most likely shifts in variable components of wages in some sectors, as well as continued wage pressure.

Today’s figures strongly support our scenario that in 2019 nominal wage dynamics in the entire economy will increase to 7.6% from 7.2% in 2018 (see MACROmap of 10 June 2019). However, the potential for wage growth in the medium term will be limited by several factors. These factors include: continued low inflation in Poland’s main trade partners (a factor hampering increase of margins in the manufactured goods sector), introduction of Employee Capital Plans (entailing increase in non-wage cost of employment), restructuring processes (carried out by investment firms aiming to make production less labour-consuming) and the removal of the cap on annual income subject to social security contributions proposed by the government in the Convergence Program (so-called 30-times cap) starting from 2020.

Another drop in employment

Based on Main Statistical Office data, the employment growth rate in the enterprise sector went down to 2.7% YoY in May compared to 2.9% in April, which is below our forecast in line with the market consensus (2.9%). In MoM terms, employment went down by 12.2k people. Drop of employment is often seen in May, however, its scale was a negative surprise. The situation appears particularly unfavourable in the context of the decline in employment recorded also in April. Such trends result mainly from the continuing supply barrier in the form of lack of highly skilled workforce. Growth of employment was also limited by a lower number of new job offers. Historically, its level is still high, but a clear downward trend can be seen from the beginning of the year. The aforementioned factors support our scenario, in which the employment rate growth will gradually slow down in the quarters to come.

Consumers’ record-high optimism and social transfers drive consumption up

We estimate that the real wage fund growth rate (the product of employment rate and the average salary) for the enterprise sector fell from 8.8% YoY in Q1 2019 to 8.0% YoY in April-May 2019. It does not change our forecast in which the private consumption growth rate will increase strongly in Q2 (5.0% YoY vs. 3.9% in Q1) in consequence of payment of additional benefits to pensioners. Favourable labour market conditions and payment of social transfers contribute to further improvement in consumers’ sentiments. In June, GUS current and leading consumer sentiment indices have reached an all-time highs.

In our opinion, today’s data on salaries and employment in the enterprise sector have a slight positive impact on the PLN exchange rate and the yields on bonds.