Sharp slowdown of wage growth in March
According to GUS data published today, nominal wage dynamics in the sector of enterprises employing above 9 people amounted to 6.3% YoY in March vs. 7.7% in February, running clearly above our forecast (7.2%) and the market consensus (6.6%). In real terms, corporate wages, adjusted for the changes in prices, rose by 1.6% YoY in March vs. 2.9% in February. Thus, the real wage dynamics in March have been the lowest since August 2013. The sharp slowdown of wage growth in March was due to the outbreak of the COVID-19 epidemic and the resulting significant increase of uncertainty about the demand outlook. Consequently, many companies have revised their plans of pay rises, both those related to higher productivity and those resulting from the rapid increase in the minimum pay which affected the entire salary grid. This revision is deeper than we expected and that is why we see today’s data on corporate wages as a signal pointing to a substantial downside risk to our forecast of wage dynamics in the whole economy in 2020 (5.5%).
Paradoxically quite good data on employment
According to GUS data, employment dynamics in the sector of enterprises decreased to 0.3% YoY in March (the lowest since February 2014) vs. 1.1% in February. In MoM terms, employment decreased by 34.2k. This has been the sharpest monthly decrease of employment in the history of the available data. The evident interpretation of the exceptionally sharp decrease of employment in March is the impact of the outbreak of the COVID-19 epidemic and the resulting reduction of the number of jobs in companies. We are very skeptical about this interpretation for two reasons. Firstly, the data published by GUS refer to the average employment in March. This means that the COVID-19 related reduction of jobs, if any, which took place towards the end of March, had no significant impact on employment. This impact was also limited by the contractual notice periods. Secondly, the number of employees reported by the companies in March was strongly negatively impacted by the increase in the number of persons receiving care benefits (the effect of closed schools, educational entities, and nursing homes). The number of these persons is not known yet but the government was planning to provide direct financial support in the form of care benefits to ca. 2 million people. This points to a potentially strong negative impact of this mechanism on corporate employment in March.
It is also worth noting that in reaction to the outbreak of the epidemic some companies decided to reduce the working time of their employees in March without waiting for the instruments of the freezing of employment provided for under the “anti-crisis shield” which was then being debated in the Parliament. Due to the GUS-required method of calculating average employment in companies (in terms of full-time jobs), the reduction of working time was conducive to decreasing the employment reported by companies.
Therefore, a natural commentary to the March employment data is the old Polish saying that “the Devil is not as black as he is painted.” We are even inclined to risk a thesis that if not for the aforementioned effect of the impact of care benefits, employment would have increased in March. It is also worth noting that as the schools reopen for forms 1-3 (during the 3rd stage of the plan of “unfreezing” the economy presented by the government last week) or at the latest after the end of the school year, persons receiving the child care benefits will be again included in the number of those employed in the corporate sector, which will contribute to its visible increase. In addition, in our view, for the above-mentioned reasons the decrease in employment by 34.2k will be faintly reflected by the April data on unemployment. Nevertheless, we estimate that it will increase by ca. 100k due to the civil-law contracts and contracts with short notice periods terminated in March and April. Today’s data on the labour market are thus in line with our optimistic scenario, in which the rate of registered unemployment will not reach a double-digit level in 2020 (see MACROmap of 6/4/2020).
Today’s data on salaries and employment in the enterprise sector are neutral for PLN and bond yields, we believe.