Record wage and salary growth for the past year could be followed by a period of growing unemployment.
The labour cost index (LCI) released yesterday by Statistics New Zealand showed wages and salaries rose 3.6% in the year to September, the largest increase since the series began in December 1992.
The quarterly employment survey (QES), also released yesterday, show that for the September quarter, total gross earnings continued to exceed the annual increase in total paid hours, pushing up by 5.5% the average total hourly earnings to $25.37.
But ANZ National chief economist Cameron Bagrie warned employment conditions would worsen until at least 2010, and he picked unemployment to hit 4.3% when data was released later this week.
It could hit 6% by the end of next year as the economy felt the full force of the world economic slowdown, he said.
The strong wage and salary data did not impress Council of Trade Union economist Peter Conway, who described the LCI rise as "modest" and 1.5% less than the consumer price index.
For the September quarter, the LCI rose 1.1% following increases of 0.8% and 0.7% in the previous two quarters.
The mean increase of salary and ordinary time wages in the year to September was 6.1% compared with 5.8% in the year to June, the largest annual mean increase since the survey began.
But there were signs employment conditions were deteriorating.
The QES found that while annual earning's growth was strong, demand for labour slowed.
Total gross earnings in the year to September rose 7%, but employment as measured by full time equivalent employees rose 1.6%, the smallest increase since March 2007.
Mr Bagrie said weaker housing, retail and business services would all contribute to higher unemployment, expected to be revealed this week, but the economy was still to feel the cool winds of the global meltdown.
"The story for the New Zealand economy for the next 12 months is going to be tough. Firms will go back to the basics. They'll be watching costs and become more efficient. The negative impact of that will be higher unemployment during that period."
There were already indications of people losing jobs in the north of the North Island, but Mr Bagrie said the South Island tended not to have the economic extremes of the north, which was now feeling the economic hangover from "partying for four or five years".
ASB economist Jane Turner was picking an unemployment rate of 4.4%, saying the degree of market uncertainty in the third quarter was greater than expected and the labour market indicators had started to weaken with employment growth shrinking 1%.
