Norwegian consumer demand resuming

(01.04.2011) Consumer demand in Norway grew more than expected in February and the NOK strengthened after the release. Today focus will turn to Norwegian unemployment and to ISM and payrolls in the US.

By Knut A. Magnussen, Senior Economist at DNB Markets

DNB markets dealingroom in osloNorwegian consumer demand was stronger than we expected in February. Retail sales rose by 0.7% - even stronger than the consensus estimate at 0.7%. Goods consumption rose by 1.5%, lifted as expected by higher car sales and purchase of fuel (up 7,6%) in February. Even if consumer demand picked up, the underlying trend is not particularly strong. The development is dampened by the sharp increase in electricity prices, and this will probably also dampen demand in March.

Compared to the forecasts from Norges Bank, the February data were somewhat on the upside and hence may be used as an argument for hiking in May rather than in June. Household credit demand rose marginally from 6.5% in January to 6.6% in February. Credit demand is still low and is not by itself pointing at a rate hike in May. However, the central bank intends to guard against future imbalances and hence would like to hike in order to dampen the housing market and also credit growth.

The NOK strengthened vs the EUR after the releases, while interest rates did not react much as a May hike is already priced in with a relatively high probability. Today registered unemployment for March is due. It is expected that gross unemployment will decrease by 900 persons. In addition the PMI for March will be released.

Inflation in the euro zone rose to 2.6% in March, according to the flash estimate released yesterday. This was clearly higher than expected (2.3%) and another for a rate hike by the ECB – which now seem almost certain to occur on Thursday. Italy surprised on the upside, with inflation rising from 2.1% to 2.6%. No details are known, but the increase is almost certainly due to even higher energy and food prices. Core inflation is still low, just a little above 1%.

Trichet & Co may also refer to the strong German labour market when the repo rate is hiked from the very low level. Unemployment in Germany fell by 55.000 persons in March and the rate has hence fallen to 7.1% - the lowest since the records began in 1992. Irish stress tests showed that the four largest banks will need 24 bill. euro in additional capital.

Bank of England issued a new lending survey yesterday. The survey showed that the availability of mortgages have not been changed much over the past three months. Credit availability for large companies has improved in the same period, while the situation for small end medium sized companies is broadly unchanged. As banks still seems reluctant to lend, the likelihood of an early pick up in credit growth seems limited.

In addition consumer confidence remained very low in March. This was hardly surprising as the effects of the budget tightening have attracted focus recently and as the global uncertainty is still prevalent. A new survey showed that inflations expectations remain high at around 3.5%, both in the short  and in the long run.

In Sweden Konjunkturinstitutet (KI) released new macroeconomic forecasts yesterday. KI expects that GDP will increase by 4.2% this year and by 3.1% next year. This may result in 160.000 new jobs and will reduce the unemployment rate to 7% during the coming year. KI further anticipates that Riksbanken will raise the repo rate to 2.25% at the end of 2011 and further to 3.0% at the end of 2012.

The Japanese Tankan survey fell more than expected in Q1. The decline was more pronounced for small than for large companies. Chinese official PMI rose in March, but less than expected. The level is still solid at 53.4. The HSBC index fell somewhat, but this index is also well above 50. US Chicago PMI fell somewhat but is still very high and indicate a high outcome for the ISM today. US employment is expected to grow by 190.000 in March.