Wages are growing faster than expected

According to GUS data published today, nominal wage dynamics in the sector of enterprises employing more than 9 people rose to 3.8% YoY in July vs. 3.6% in June, running clearly above the market consensus (2.9%) and our forecast (1.9%). In real terms, corporate wages, adjusted for the changes in prices, increased by 0.8% YoY in July vs. a 0.2% increase in June. According to GUS statement, higher wage dynamics in July resulted from the continuation of the payment of bonuses, quarterly, annual and jubilee awards, and retirement benefits as well as pay rises and restoration of pre-pandemic salary levels in some companies. It is worth noting that wage dynamics increased in spite of a strong last year’s high base effect (see MACROpulse of 20/8/2020).

Subsequent months will bring slowdown of increase in wage dynamics

The increase recorded in wage growth in July supports our view that it has reached its local minimum in Q2. In subsequent months we expect its weak increase as furloughed employees will return to work and the situation in the labour market normalizes. However, it continues being adversely impacted by measures taken by companies to reduce the cost of labour (revision of plans concerning pay rises and reduction of their nominal level). We therefore maintain our view that wage dynamics will not have returned to pre-pandemic levels in the horizon of our forecast (namely before the end of 2021 - see MACROmap of 8/6/2020).

Employees are returning to work

According to GUS data, the dynamics of employment in the sector of enterprises increased to -2.3% YoY in July vs. -3.3% in June, running visibly above the market expectations (-3.1%) and slightly above our forecast (-2.5%). In MoM terms, employment increased by 66.2k in July vs. an increase by 11.9k in June, recording its highest increase in July in history. According to GUS statement, the increase in employment in July compared to June resulted from the restoration of pre-pandemic working times, employees returning from care benefits, sick and unpaid leaves, and from re-employment in companies. Employment in July continued to be 193.9k lower from February 2020, namely the last month before the strong pandemic effect on the labour market. We maintain our forecast in which the unemployment rate will amount to 7.5% in Q4 2020 vs. 5.2% in Q4 2019 and will decrease to 6.1% in 2021, staying markedly above the pre-pandemic level.

Weak consumer sentiment is negative for consumption outlook

The high volatility of the data reported in recent months, which largely results from the method of recording persons covered by the freeze of employment in statistics, is responsible for the fact that they are not fully reliable for assessing current labour market trends. In particular, due to the a/m factors distorting the employment data, the dynamics of the wage fund (employment times average wage) is also greatly disturbed and their usefulness for assessing the outlook for consumption is currently very low. Considering the GUS business survey results published today for August and pointing to the deterioration of consumer sentiment (a decrease in both current and leading consumer confidence index), today’s data on corporate wages that are better from our expectations do not alter our scenario in which consumption will decrease by 3.8% in 2020 YoY vs. a 3.9% increase in 2019 and will increase by 4.4% in 2021.

Today’s better-from-the-market-consensus data on wages and employment in the enterprise sector are slightly positive for PLN and bond yields, we believe.

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