SINGAPORE's overall unit labour cost rose 4.4 per cent in the third quarter of 2014 - its fastest pace in over a year - as the effects of restructuring policies that are keeping the labour market tight continue to work their way through the economy.
While the desired outcomes of these policies have yet to materialise - labour productivity contracted for a second straight quarter in Q3 - the Ministry of Trade and Industry (MTI) on Tuesday reiterated the need to look beyond quarterly shifts to sector-specific and longer-term gains.
Overall labour productivity fell 0.8 per cent in Q3 from a year ago, though smaller than Q2's 1.4 per cent drop. Noting the decline, UOB economists Francis Tan and Jimmy Koh said that while many have argued that such a measure of a nation's productivity is limited, it is "at least one of the few quantitative key performance indicators of productivity".
"As we move towards the halfway mark of our productivity drive, even if it is not on our main dashboard, we have to still look at it occasionally on our side mirrors," they wrote.
But MTI permanent secretary Ow Foong Pheng said at a media briefing on Tuesday that it was "more instructive" to distinguish between export-oriented sectors, which saw a 2.1 per cent rise in productivity from 2010 to 2013, and domestic-facing ones such as retail, construction and food services, which saw a 0.3 per cent drop in productivity over the same period.
"Over time, as productivity improves, we hope that that will partially mitigate the upward pressure on costs," Yong Yik Wei, director of MTI's economics division, also said.
The manufacturing sector was an example of this in Q3. The unit business cost of manufacturing rose for the first time since Q2 2013, driven by increases in labour and services costs. But the sector was one of just two sectors to report productivity gains in the quarter, the other being the finance and insurance sector.
Labour-reliant sectors once again took the bottom ranks when it came to productivity in Q3. The accommodation and food services sector's productivity fell 3.5 per cent year on year, while construction productivity declined 2.9 per cent.
For these domestically-oriented sectors, lower spending from Singapore's consumers could present yet another constraint to growth.
Private consumption expenditure growth in the third quarter slowed to 1.2 per cent - a near two-year low according to HSBC Asia Pacific economist Joseph Incalcaterra. He expects that this could slow even further.
"With the property sector continuing to lose steam - and the MAS (Monetary Authority of Singapore) steadfast in its application of macro-prudential measures - we don't see much reprieve on the horizon. Even without a strong negative wealth effect from the property correction, consumption may slow even further," he said.
Some of this also showed up in the retail trade sales for the quarter. Excluding motor vehicle sales, retail sales volumes contracted 1.2 per cent as discretionary spending fell. Demand for recreational goods fell 10 per cent, while that for furniture and household equipment fell 8.4 per cent.
Similarly, food and beverage businesses - which tend to be labour-intensive and would have had higher wage bills to manage - reported poorer sales. After adjusting for changes in prices, sales volumes of food caterers, fast food outlets and restaurants fell 5.1 per cent, 3.9 per cent and 3.2 per cent respectively.