Macro Weekly

Macro week 19 by #1 Chief Economist Harald Magnus Andreassen, and Macro Analyst Tina Norden

Last week

The virus:

The 3^rd wave is on the way down in almost all rich countries, followed by a decline in the no. of hospitalisations and even more in the no. deaths – down to very low levels everywhere
Mobility is rising almost everywhere in DM as the negative drag from corona restrictions/cautious behaviour are easing
In Norway, the no. new cases flattened last week, as many restrictions are eased and mobility is on the way up. The level of new infections is low, and the no. of hospitalised patients is low, and even a substantial increase in new cases will pose any treat to the hospital system. As the vaccination process moves on, and the immunity rate is increasing steadily, it will be tempting to open up further, at least if the new outbreaks are ‘local’ and can be contained, as they are now
The pace of vaccination stayed at +/- 3% of the population in most EU countries, as in Norway last week. Norway will not be able to speed up before larger quantities of vaccines from BioNTech/Pfizer arrives in June, as we will probably not allow AstraZeneca or J&J’s vaccines (the Government will probably receive a recommendation today)
India is still struggling, but as mobility has fallen sharply the past three weeks, and the growth in new cases has slowed almost to zero (but we know too little about testing policy/capacity to judge these infection data properly – and the underreporting is of course anyway massive)

The economy:

The global composite PMI rose more than we assumed in April, to the best level since 2010, signalling growth far above trend. Both manufacturing & services contributed. The US is the lead (both the PMIs & ISMs), just beaten by Sweden. China is reporting growth well above trend too. European services are still lagging but are in aggregate not contracting anymore, and the manufacturing sector is reporting record high growth – and is close to the global lead (ahead of US). The Indian PMIs were surprisingly strong, and the EM average rose further. Norwegian manufacturers are thriving too. Delivery times are surging like never before. Businesses are reporting unusual to record high price increases

Global auto sales probably rose further in April. US sales climbed to the highest level in several years. UK sales rose too, but EMU sales were probably flat, at a low level. Sales in India (surprisingly) kept up, according to media reports, at the highest level in many years. Sales in other EMs seems to have kept up too

Both exports and imports rose further in April, and in both value & volume terms, trade flows are far above the pre-pandemic trend. No signs of any slowdown in China or abroad. The trade surplus fell slightly

Nonfarm employment missed forecasts big time in April, 266’ vs. expected 987’. Leisure/hospitality added more than 300’ jobs but other sectors were far weaker than expected. Unemployment rose by 0.1 pp to 6.1%, expected down to 5.8%. Wages rose far more than expected but so far wage inflation is kept in check (based on all wage indictors). Given all information we have at hand, it seems unlikely that demand for labour slowed sharply in April. The vacancy rate is record high, and companies are not able to fill them, like never before. The ‘generous’ unemployment benefit, in average above USD 600/week, may dampen supply. In addition, 2.8 mill workers say they are not able to work due to covid-19. We expect supply to strengthen the coming months but the labour market could turn out to be very tight after the pandemic too. Bond yields fell 10 bps on the weak report, but quickly recovered to the pre-report level
Productivity growth may be accelerating but data are very uncertain during the pandemic.

Retail sales rose more than expected in March, to 2% above the pre-pandemic level, even if Italy and Spain are still below (at least partly due to fewer tourists).
Several country data implied a modest increase in manufacturing production in March, in spite excellent surveys

Bank of England left the policy rate unchanged (of course), will continue the QE program even if the economic forecasts were revised sharply up

Norges Bank kept the policy rate and the rate path unchanged, as expected. The economic outlook was still uncertain, but not substantially anymore
House prices fell by 0.1% in April, down from +1.4% in March. We expected +0.9%, Norges Bank 0.8%. Prices fell in 10 of 16 cities, and rose significantly just in 2, Kristiansand & Stavanger. Our flow based national model signals 1% m/m price growth but the Oslo model zero growth
LFS (AKU) unemployment rate is slowly declining, and employment is slowly in the way up
Industrial production was up 0.7% in March. The increase in March was mostly driven by metals, chemicals, and refined petro. Non-oil related production is now at the highest level in 10 years, +5% vs. the pre-pandemic level. Oil-related manufacturing production fell – and is 9% lower than before corona. (Of which corona is not mostly to blame)

This week: China in April, US CPI & retail sales, Norwegian CPI, GDP

April real economy data (retail sales, industrial & services production, investment) should confirm decent growth, and that Q2 growth will recover from the slow Q1 but not an acceleration from here. The activity level is high, shortages of raw materials and some policy tightening are solid argument for somewhat slower growth

We know that annual inflation rates will climb rapidly in April, so focus on the monthly changes, both for the CPI & the PPI. Business reports are extreme, of course
Small businesses have already reported unprecedented problems filling their record high vacancies, and hiring plans remain intact, and that they have increased wages and will continue to do so, much faster than normal. More details on sales etc this week
Retail sales are expected to remain elevated in April, following the almost 10% lift in March, funded by (a small part of) the stimulus cheques, we presume. Auto sales are reported up. The coming months, we expect sales to come closer to a long term trend. Now sales are at least 10% above
Manufacturing production is expected sharply up in April, to above the pre-pandemic level for the first time. Surveys are ‘crazy’ but lack of supply may soon hamper production

Industrial production will probably climb some 0.5%, less than we assumed until last week. Lack of supply may already dampen activity, like in the auto industry

We assume that Mainland GDP fell further in March, due to Covid restrictions – and that GDP fell by 0.7% in Q1. However, what happens or not in March or April, does not have any impact on our assessment of the activity level in H2
Annual core CPI inflation is expected sharply down in April, to 2.3% from 2.7% in March. We forecast ‘normal’ price increases in April but prices rose sharply in April last year (0.6% s.a) and this trick will not be repeated now

Previous reports: