Norwegian retail sales disappoint expectations in September, retail sales trend to pick up in 2019

Norwegian retail sales disappointed market expectations for the month of September. On a sequential basis, retail sales dropped 0.7 percent, as compared with market expectations of a rise of 0.2 percent. Furthermore, the print for August was downwardly revised to 0.4 percent from 0.6 percent. On a third quarter as a while, retail sales fell 2.8 percent, driven by a sharp fall in June.

Meanwhile, goods consumption also dropped in the month. Goods consumption, which includes car sales, fuel and electricity and correlates more with goods consumption in the national accounts dropped 1.4 percent sequentially in September, driven by a fall in car purchases.

On the other hand, the Credit indicator C2 rose 5.6 percent year-on-year in September, down from 5.9 percent year-on-year in August. Household’s credit growth was up 0.1 percentage points to 5.9 percent year-on-year in September, consistent with the average growth seen so far in 2018.Given the figures released today, the quarterly growth in private consumption in the national accounts are expected to be negative in the third quarter and thus curbing the growth, noted DNB Bank in a research report.

Nevertheless, employment growth and wage growth continue to indicate towards a decent growth in household’s income. Real income is stifled by a temporary high inflation. As inflation might slowdown in 2019, the real income growth might rebound.

The fall in real income growth is impacting the recent subdued consumption. The drop in real income is likely temporary, along with some random soft monthly figures. According to the DNB Bank, the trend in retail sales is likely to pick up in 2019.

The rebound in credit growth was small and the main picture is a stable household credit growth. It remains above the income growth, adding to a further rise in the debt to income ratio. For Norges Bank’s plan to hike policy rates, the household’s debt level and further credit rise are significant reasons.

“We think this plan is robust for volatile consumption figures and continue to expect that the policy rate will be hiked to 1.00 percent in March 2019”, added DNB Bank.