Normalisation of wage growth

According to the GUS data published today, nominal wage growth in the sector of businesses employing over 9 people slowed down to 8.7% YoY in September vs. 9.5% in August, in line with market consensus and slightly above our forecast (8.5%). In real terms, after adjusting for price changes, wages in businesses rose by 2.7% YoY in September vs. a 3.8% growth in August.

Despite mounting wage pressure in businesses signalled in business sentiment surveys (see MACROpulse of 17/9/2021), wage growth decelerated, mainly due to statistical effects. It was driven down by an unfavourable difference in the number of business days (2 business days more in August 2020 vs. 2021, the same number of days in September 2020 and 2021). In addition, wage growth YoY was limited by the effects of the high base from a year ago (in September 2020 wages grew the strongest since 2015 in monthly terms). At the same time, we reiterate our view expressed a month ago that wage pressure related to the good labour market situation will build up gradually.

Another strong decline in employment

Based on GUS data, employment growth in the enterprise sector went down to 0.6% YoY in September vs. 0.9% in August, which is in line with the market consensus and slightly below our forecast (0.7%). This significant decline in the annual employment growth was primarily caused by last year’s strong high base effect connected with a quick restoration of employment after the first wave of the pandemic. Month on month, employment fell by 4.8k in September, compared to a drop of 9.7k in August. While a fall in employment in September is not unusual, its scale was the highest since 2012. According to GUS, it resulted from, among others, termination and non-renewal of term contracts, termination of employment contracts (sometimes due to COVID-19), seasonality of employment, as well as employees receiving sickness benefits. Following the decline in September, the number of employed was lower by 98.7k than in February 2020, which was the last month before the pandemic.

In our view, the decline in employment in September may also have been a continuation of the process of adjusting employment in businesses benefiting from the financial shield conditioned on maintaining employment during the benefit period. Businesses may also have been scaling back staffing plans due to uncertainty surrounding the course of the fourth wave of the pandemic, a deterioration in the global economic outlook and ongoing supply constraints (including shutdowns at some businesses). These factors will limit businesses' propensity to increase hiring in the months ahead as well, but we believe we will see employment growth in Q4.

Wage fund a brake on consumption

The real wage fund growth rate in the enterprise sector (which is the product of employment and average wages adjusted for price changes) went down from 4.7% in August to 3.3% YoY in September. Thus the index slipped to the lowest level since March 2021. This significant decline was caused by the slowdown in employment growth discussed above and further inflation rise in September (see MACROpulse of 15/10/2021). The real wage fund growth slowdown (to 4.4% YoY in Q3 from 7.5% in Q2) is consistent with our forecast in which the dynamics of consumption will fall from 13.3% in Q2 to 3.5% YoY in Q3.

We believe that the decline in employment recorded for two months in a row and driving down wage pressure, will provide some MPC members with an argument against further interest rate hikes. This supports our scenario of no change in monetary policy at the November MPC meeting.

Today’s data on wages and employment in the enterprise sector is neutral for the PLN and yields on bonds.

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