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Fast Comment SwedenLast week's data digest and preview of March business sector production

  1. Retail sales catching up with the sector's relatively optimistic sentiment
  2. Cost pressure firming, but last week sent mixed signals
  3. Production growth expected to have shone brightly in March, but clouds are forming on the horizon
Retail sales catching up with the sector's relatively optimistic sentiment
Last week's data showed retail sales picking up in March. The 2.9 percent y-o-y increase was faster than expectations, even compared to our above-consensus estimate. This puts sales growth better in line with the overall sentiment in the sector, which stands somewhat above normal and is further underscored by labour shortages. The pickup in sales was not merely a boost from Easter holiday food sales; durable goods sales increased as well (see graphs below).
Cost pressure firming, but last week sent mixed signals
Wage growth as well as producer price increases are on an upward trend, albeit a slow one. Last week, the January and February outcomes for hourly wages were released, showing more or less a sideways movement at +2.6 percent y-o-y. Moreover, last year's annual average was revised down slightly, to +2.5 percent. This could appear to add to the worries about medium-term inflation undershooting the inflation target, but the data details are quite positive. Now, as opposed to a year ago, business sector wages are driving the overall wage increases. This adds to signs that the economic boom is exerting upward pressure on wages, which we have already found in the National Accounts. Another line of cost pressure indicators sending mixed signals was producer prices. Domestic consumer goods increased at a slower pace than recently, dampened by food products, while the dominant share of consumer goods, imports, picked up on the back of krona depreciation.
Production growth expected to have shone brightly in March, but clouds are forming on the horizon
On Friday, the March data for business sector production will be released. We expect continued robust growth at +4.5 percent, calendar adjusted y-o-y (+0.4 percent m-o-m, seasonally adjusted). The consensus expectation is almost as optimistic (median +4.2 / +0.3). Global growth and trade are supporting export-oriented firms, and overall indicators look strong for another few months. However, clouds are forming on the horizon, with some leading indicators now taking a turn for the worse. Of course, the cooling-off of the construction boom will be one factor dampening production ahead.



Retail sales now more in line with sentiment within the sector 


Source: Macrobond


 Both food and durables sales picked up in March


Source: Macrobond




 Hourly wage increases now driven by business sector wages picking up...



 ...while government wage increases are slowing now that targeted additional increases have faded




 Producer prices for consumer goods about to be lifted by the weakening of the krona


Source: Macrobond



 Food price increases held back by deceleration in domestic market foods 


Source: Macrobond



 Robust business sector production lately 


Source: Macrobond


 And leading indicators support strong growth for the next few months



But some more forward-looking indicators have begun to suggest a cooling-off of growth is
on the cards






Disclaimer

Johan Löf

Senior Economist

Sweden

jolo22@handelsbanken.se

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