Though this September had one less trading day than in the previous year, the monthly statistics showed sound growth dynamics. This corroborates the view that the economy gained momentum after the summer slowdown, which is apparent particularly in the acceleration of industrial production. In contrast, retail sales dynamics have been persistently strong. Both statistics surpassed market expectations in September. The construction sector remains the only exception. However, we expect that it will soon begin a happier period.
September industrial production maintained strong yoy growth dynamics despite the lower number of working days. Output increased 4.4%. After calendar adjustment, growth amounted to 7.0% yoy. The good results are, as usual, thanks to the automotive industry. We see the impact of increased production capacity combined with the change of car model composition. The September chill also passed through to the production of heat and electricity. Additionally, we assume elevated investment activity contributes to the strength of industrial dynamics.
Given the current lack of an available labour force, we assume investment will remain strong in the coming months, as well. Businesses will adjust to growing demand by extending their production capacities. However, they will be forced to invest without hiring new workers. The increasing number of domestic orders suggests growing investment activity.
Industry still creates new jobs. Employment increased 1.9% yoy while the average nominal wage added 6.9% yoy in September.
The tightened situation on the labour market and the difficulty of finding a suitable work force pushed wages up in industry. In August, wages were 7.5% higher yoy.
Construction did not join the growth wave
September’s figures confirmed that the third quarter was not successful for construction. The sector dropped 1.3% mom, and yoy growth after seasonal adjustment decelerated to 0.2%. The dynamics are positive thanks to building construction while civil engineering works deepened their decline. However, we believe better times are coming. By the end of next year, some of the funds from EU programmes must be tapped. A big part of the money will be aimed at infrastructure. Moreover, today’s figures show the number of building permits issued increased 3.8% yoy, while their approximate value grew 32.2%.
The premature start of autumn sent people shopping
Retail sales increased a solid 6.2% yoy (7.4% after calendar adjustment) in September, showing that households have not lost their spending appetite. Retail trade increased in all major categories. The most significant increase was recorded in non-food sales (+10.6% yoy SA), and a decent increase was recorded by sales at gas stations (+5.2% yoy SA). In contrast, food sales printed only negligible growth.
This shows that households are spending their money on non-essential goods. This fact is corroborated by the strong sales of shoes and clothing (+22.3%), electronics, furniture and household equipment. In contrast, the end of the summer season had no significant effect on car sales, which dropped 0.5% mom and decelerated to 1.6% yoy.
Favourable economic trends are set to continue in the last quarter of the year. The growth of the main Czech trading partners continues, and domestic demand will remain strong. Thus, we believe industrial output should increase 5.6% yoy this year and 3.9% next year. Industrial growth will create new jobs, which is set to push unemployment further down. The share of unemployed will drop one tick to 3.7% in our view in October. Wage dynamics will remain sound. Tight labour market conditions will propel consumer confidence, which remains at elevated levels and will support retail sales in 4Q17. In a whole-year comparison, retail sales should add 5.5% while next year even 6.4%.