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Fast Comment NorwayPreview: registered unemployment and retail spending

  1. Registered unemployment trending lower, although the decline in April was probably a bit exaggerated
  2. Retail spending probably rebounded a bit further in April, but overall trend still tame
  3. Overall, figures are supporting Norges Bank's arguments for a rate hike in June
Registered unemployment trending lower, although the decline in April was probably a bit exaggerated
Next week we will see figures for retail sales in April and registered unemployment (NAV) in May, on Wednesday and Friday respectively. Starting off with the labour market, employment growth is holding up well. According to the National Accounts, overall employment expanded by 0.5 percent in Q1, in line with the signals from Norges Bank’s Regional Network. For some time, survey employment has been weaker than indicated by these figures. However, this was partly corrected in the latest reading that showed a clear uptick in overall employment. The upshot is that employment growth continues to run above the growth rate for the working age population. As the cyclical recovery of the participation rate is also (largely) complete, the current pace of employment growth should continue to push the unemployment rate further downward. However, the decline in registered unemployment in April (-1,400 people, seasonally adjusted) was probably a bit exaggerated. This is because the registration happened late in April, which, according to NAV, could have steepened the decline as the usual seasonal pattern is for unemployment to fall throughout April. We thus expect to see a more modest decline in unemployment in May, relative to April. We stress, however, that the underlying unemployment trend continues to point south. This is one of Norges Bank’s key arguments for a rate hike in June. For the numbers, we expect an unadjusted unemployment rate of 2.1 percent in May, which gives an unchanged reading in seasonally-adjusted terms, of 2.2 percent. This is down from 2.33 percent, which was the average unemployment rate in Q1.
Retail spending probably rebounded a bit further in April, but overall trend still tame
Turning to retail spending, the trend has remained stubbornly weak this year. Spending rose by just 0.6 percent m-o-m in March, which made up for just half of the 1.2 percent decline in February. The average monthly pace so far this year has been -0.3 percent. The subdued trend may be partly explained by the continuing weakness in real wage growth. The annual inflation rate (CPI) is currently 2.9 percent, which is not far from the nominal wage growth rate this year (3.2-3.3 percent). However, this can only partially explain the weakness in retail spending, as solid employment growth is boosting real disposable incomes for households overall. Turning to other possible explanations, consumer confidence has fallen from its highs. To some extent, this fits the pattern of retail spending. However, even in this context the weakness in retail spending looks exaggerated (chart below). We thus expect to see some rebound in April, and have pencilled in a rise of 0.8 percent m-o-m. That would imply the trend is at least flat and not negative as suggested by the numbers so far this year. We should also mention that overall consumption growth is holding up much better than indicated by the retail figures. This is largely due to the solid pace of the consumption of services, which is making up a larger share of household spending. As such, some of the persistent weakness seen in retail sales may be structural, and thus not related to the current state of the business cycle; i.e. households are skewing purchases toward services (the extent of e-commerce is also a source of uncertainty). The upshot is that overall consumer spending is holding up well enough, even though the retail data have been weak so far this year. Again, the near-term data for the economy is solid enough for Norges Bank to hike its policy rate in June.


Disclaimer

Marius Gonsholt Hov

Senior Economist

Norway

maho60@handelsbanken.no

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