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Is the labour market cooling down?

Historically strongest decline in real wages

In accordance with the GUS data published today, nominal wage growth in the sector of businesses employing more than 9 employees decreased from 13.9% YoY in November to 10.3% in December, running markedly below the market consensus, which was consistent with our forecast (12.4%). In real terms, after adjusting for price changes, wages in the enterprise sector fell by 5.4% YoY in December vs. -3.1% in November. This means that it was the strongest decline ever recorded in data history (since 1999).

Last year’s high base effects were the main reason behind a strong slowdown of nominal wage growth. Therefore, the slowdown was seen across many sectors. The wage growth structure data for December shows that it was a slower growth in manufacturing (8.5% YoY in December vs. 11.1% in November) and in “trade and repair of motor vehicles” (6.7% vs. 11.7%), “information and communication” (6.9% vs. 13.5%) and “mining and quarrying" (15.9% vs. 35.8%) sections that drove total wage growth down. Today’s data is consistent with our opinion, which says that the annual wage growth will follow a mild downward trend despite the continuing, strong wage pressure, amidst the growing costs of companies’ operations and the expected economic growth slowdown.

Employment data also comes as an unpleasant surprise

Employment growth in the enterprise sector went down to 2.2% YoY in December vs. 2.3% in November, running below the market consensus, which was consistent with our forecast (2.3%). In monthly terms, the number of employed fell by 2.8k. Employment decline in December is nothing unusual, but what is particularly noteworthy is a relatively strong drop in the number of employment in manufacturing (by 8.5k). It is hard to draw conclusions based on data from just one month, but this may be a consequence of restructuring processes in enterprises, which were indicated at by the PMI for December (see MACROmap of 02/01/2023).

Did consumption slow down in Q4 2022?

A slower growth in employment combined with a quicker decline of real wage in the enterprise sector resulted in a decrease in the real wage fund growth rate in the enterprise sector, the rate being the product of employment and average wage adjusted for changes in prices, to -3.3% YoY in December vs. -0.9% in November. On average, in Q4 2022 the wage fund shrank by 2.0% YoY vs. a 0.6% growth in Q3. The wage fund data is consistent with our forecast of a decline in private consumption (by 2.0% YoY in Q4 vs. -0.9% in Q3). It will be possible to assess private consumption trends more precisely when we see the retail sales data for December, which is to be published on Monday.

We believe that today’s worse-than-expected data is slightly negative for the PLN and yields on Polish bonds.