Home refurbishment is probably also rising sharply. Overall, the supply of capital to households has increased sharply. Debt accumulation was somewhat more than 11 per cent in 2004 and is now considerably higher than growth in household disposable income. This largely reflects the sharp rise in house prices since the mid-1990s. According to TNS Gallup’s consumer confidence indicator for the first quarter of 2005, households are still highly optimistic with regard to their personal finances and the domestic economy. Our regional network confirms this impression, with reports of strong growth in companies that provide goods and services to households. On the whole, household consumption and housing investment are projected to show fairly strong growth over the next few quarters. Even with a strong upturn in the mainland economy, the increase in the number employed has been relatively modest. Productivity rose fairly sharply in the first few quarters after economic growth picked up. Normally, when productivity growth is strong, enterprises again begin to hire new staff. The current upturn has lasted about two years. The fairly low level of growth in employment, as measured by the number of employed, must be seen in the light of the sharp decline in sickness absence through 2004 after rising for several years. The decrease in sickness absence has increased companies’ supply of labour and reduced the need for new employees. Measured in person-hours worked, employment growth was solid last year. The number of person-hours worked rose by 2.2 per cent from 2003 to 2004.
A corollary to the increase in the number of person-hours worked is partly reduced sickness absence and partly three more working days in 2004 compared with 2003. An increase in available person-hours and increased competition and rationalisation in many sectors led to higher-than-normal growth in potential output last year. The economy has therefore been able to grow fairly rapidly for a period without the emergence of bottlenecks in the labour market. In the business tendency survey, manufacturing industry reported rising output volumes and capacity utilisation. Average capacity utilisation in the manufacturing sector is now close to its historical average. Information from Norges Bank’s regional network also indicates an approximate balance between supply and demand in the economy, and that capacity utilisation is close to normal. A normal level of capacity utilisation is consistent with an output gap – the percentage difference between actual output and potential output – that is close to zero. Growth in demand and output is expected to remain high in the near term. Unemployment may fall somewhat more quickly than has been the case over the past year. The output gap is expected to be positive in 2005. BIS Review 27/2005  3  Higher demand for companies’ goods provides scope for increasing prices. Experience shows that inflation is directly influenced by the level of capacity utilisation in the Norwegian economy. Some of the rise in prices for domestically produced goods and services can be attributed to higher margins in the business sector.