The week ahead should provide some proof that employment growth in New Zealand is back after two volatile years of recessionary redundancies and falling wages.
Statistics New Zealand will tomorrow release its full suite of wage data.
The labour cost index is the premier guide for wage inflation because it measures the cost of a given quantity and quality of labour input.
Westpac research economist Dominick Stephens expects fourth-quarter wage growth to run slightly ahead of the three months ended September because the wage-depressing effect of the recession was finally beginning to disappear - partly because of seasonal effects.
"Wage growth is strongest in the fourth quarter because that is when the largest number of people get their annual increase but Statistics NZ does not seasonally adjust the index."
Private sector wage growth including overtime, which receives the most attention from the Reserve Bank, was expected to have risen 0.5% compared with 0.4% in September, he said.
Public sector wage growth was expected to rise far slower that it did in the third quarter when a large teachers' pay award affected the wage figures.
If Westpac's forecasts were correct, annual wage growth would slow to an eight-year low, he said.
The quarterly employment survey would also be released tomorrow.
In September, it threw up an "absolutely wild read" of 1.7% private sector ordinary time wage growth and 2.1% total ordinary time wage growth.
"We never took that seriously.
We expect some pay back this quarter with a drop in private sector wages.
In any case, the survey wage measures are notoriously volatile and receive little attention from the market."
Of more interest was the measure of paid hours which gave a loose idea of the state of economic activity in the October to December period, Mr Stephens said.
A sharp increase in paid hours was expected, in line with the generally improved tone in economic data relating to the quarter.
On Thursday, employment data was expected to show employment growth for the three months ended December, the first in a year.
Employment growth figures had been volatile for the past two years, possibly because of changes to the seasonal patterns that were difficult for Statistics NZ to correct for, Mr Stephens said.
For the past two years, the December quarter had been strong only to be followed by a shockingly weak March quarter.
"We are preparing for a repeat this year. In other words, the employment growth figures could well be rosier than the true situation on the ground."
After such a severe recession, merely average employment growth was not enough to prevent unemployment from rising further, he said.
Firms were saying it was still easy to find labour although not as easy as it was in early 2009.
Westpac was forecasting a slight increase in unemployment from 6.5% to 6.7% which Mr Stephens expected to be the high-water market.
The Reserve Bank's unemployment forecast was 6.6%.
The central bank would pay more attention to the unemployment rate than to employment.
An unemployment rate of 6.4% or lower would be required to bring a March official cash rate hike seriously into contention, he said.
A higher outcome would strengthen the conviction that the central bank would hold at 2.5% at the March review.
"The market seems to have learned that there is greater information content in the unemployment rate and now tends to react more to unemployment surprises than employment surprises."
