Surprising acceleration in wage growth in July

One-time rewards and bonuses boosted wage dynamics in the sector of businesses

In accordance with the GUS data published today, nominal wage growth in the sector of businesses employing more than 9 employees increased from 13.0% YoY in June to 15.8% in July, running markedly above the market consensus (13.2%) and our forecast (12.7%). In real terms, after the adjustments made to take into consideration the changes in prices, wages in businesses rose by 0.2% YoY in July comparing to a 2.2% drop in June, which is the first increase after two months of decline. We believe that this surprising acceleration in wage growth was largely due to one-time effects. What supports such an assessment is a press release from GUS, according to which the increase in wages was supported by, among other things, additional one-time rewards in the mining industry, where, according to GUS data, nominal wages in July increased by as much as 81.6% YoY, compared to 17.7% in June. We estimate that this boosted the annual growth rate of wages in the enterprise sector by about 1.6 pp. Among the sources of the wage growth, GUS also mentioned one-time payments such as rewards granted on the occasion of Forest Service Day or Power Industry Day. As a result, for example, the growth rate of nominal wages in the "electricity, gas and water production and supply" category increased to 33.2% YoY in July, compared to 15.1% in June, which pushed the annual growth rate of total wages up by about 0.5 pp. Therefore, the acceleration in wage growth between June and July does not change our assessment that businesses will be increasingly reluctant to raise wages in a deteriorating economy, even amid continued strong wage pressure associated with high inflation. However, we see a risk that the downward trend in annual wage growth that we expect, may be disrupted in the coming months (as in July) by the effects of one-time payments of rewards and bonuses, used by some businesses, especially in sectors with a high degree of unionization, as a tool to reduce wage pressure.

Slowdown in economic growth will curb demand for labour

Employment growth in the enterprise sector increased to 2.3% YoY in July vs. 2.2% in June, running above the market consensus (2.1%) and our forecast (2.2%). In monthly terms, the number of employed grew by 11.6k. According to the press release from GUS, the increase in average employment in July 2022 was due to, among other things, the enrolment of seasonal workers, increased contractual working time, and lower sickness absence. In the following months, we expect a reduction in the employment growth rate due to a weaker demand for labour linked to the expected slowdown in economic growth (see MACROpulse of 19/8/2022).

Increase in real wage fund poses a risk factor to our consumption path

Acceleration of employment and real wage growth in the enterprise sector in annual terms has contributed to growth in the real wage fund growth rate in the enterprise sector (the product of employment and average wage adjusted for changes in prices), to 2.5%% YoY in July vs. -0.1% in June and 2.1% in Q2. Thus, today's data poses an upside risk to our forecast for a strong slowdown in consumption in Q3 (to 0.6% YoY from 6.5% in Q2).

Slight increase in seasonally adjusted industrial production

In accordance with the GUS data, the growth of industrial production sold in enterprises employing more than 9 people decreased to 7.6% YoY in July compared to 10.4% in June, running below the market consensus (7.8%) and above our forecast (7.1%). A statistical effect coming from an unfavourable difference in the number of working days between June and July (in June, the number of working days was the same as in 2021 while in July it was one day lower than a year ago) drove the industrial production growth down. Seasonally adjusted industrial production increased by 0.5% MoM in July (the first MoM increase in production since March 2022).

The decline in industrial production growth between June and July was caused by higher production growth in categories where sales are predominantly export-oriented (9.2% YoY in July vs. 8.3% in June) and lower growth in both construction-related industries (5.5% vs. 14.2%) and other industries (7.1% vs. 10.8%). The marked decline in production growth in construction-related industries reflects the strong slowdown in activity observed in this sector (see MACROpulse of 21/07/2022). On the other hand, what came as quite a surprise in light of the incoming business survey results (see MACROmap of 01/08/202) and unfavourable calendar effects, was the increase in production growth in export-oriented industries. It was driven by higher production growth in the "electrical equipment" (8.0% YoY in July vs. 4.7% in June) and "vehicles, trailers and semi-trailers" (20.4% vs. 16.8%) categories.