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Thursday, 18 August 2011

The consumer feels that the economic circumstances are deteriorating… and raises his white flag.

The economic growth monitor of Tuesday, August 18, supplied by the Dutch Central Bureau of Statistics ( showed already that the economy of the Netherlands had stalled. Also the economy of the other important Euro-zone countries – not belonging to the PIIGS-group – showed zero or even negative growth.
My conclusion based on these figures was, that we are heading into a new recession. Yesterday, I decided to drop a brick, as I even offered that we never really came out of the depression that started at the end of 2008 in Europe, but just have had a little upswing, totally caused by government spending and stimulus.
After the latest publication on ‘consumer confidence’ in The Netherlands by the CBS, it becomes clear that the consumer is very much aware of this. The text is a translation of the pertinent snips of the CBS-release. My charts are all based on the CBS-data, although the presentation differs from the CBS-presentation.
I must remind you that these findings are not based on solid data, but on a weighting of the rates of positive and negative answers of Dutch people:
The consumer confidence was smashed in August, 2011. The indicator of consumer confidence went down for a massive 9 points and landed on -21.  Not as much the willingness to purchase durable goods, but the confidence in the economical climate evaporated.
The consumer confidence indicator is based on the following five data:
·    Economic situation for the last and the next 12 months
·    Financial situation for the last and the next 12 months
·    An indicator showing whether it is a ‘favorable time for large purchases’.

The consumers were very pessimistic on the economic climate in August, 2011. The confidence in the economic climate for the next 12 months was the figure that dropped the most: 25 points. This drop was the second within a short period: in June, there had already been a drop by 10 points. Also the economic situation during the last 12 months dropped substantially with 21 points, compared to July.
In contrary to its view on the economic situation, the consumer’s willingness to purchase changed little. Consumers were a little more negative on their own financial situation, but considered the time more favorable for the purchase of durable goods. The partial indicator ‘willingness to purchase’ dropped one point to -10, which is still very low.
And then the CBS prints an important disclaimer:
The mood of consumers is normally closely connected to the development of stock rates. This is now also the case.
The following 3 charts show the figures on consumer confidence in a different setting than the CBS does. As I find this setting more informative, I must warn you that this makes it harder to compare the CBS data in the press release with mine:
Financial and economic situation last 12 months (
Click to enlarge
Although the figure on the economic situation is subjective, I consider it highly informative: the objective deterioration of last month’s economy supplies a subjective, negative feeling on the last 12 months, that was much stronger than only one month ago. And how people feel on the past and the future decides largely how people will financially act in the coming period.
The most remarkable thing is that the feelings on the own financial situation hardly changed over the last two years, but the spread with the economic situation changed enormously: first for better and now for worse again.
Financial and economic situation next 12 months (
Click to enlarge
The same is true for the expected economic and financial situation for the coming 12 months. People expect that their personal financial situation will hardly change in the coming months, while their expectance for the economy drops through the floor. This is a strange discrepancy, but this discrepancy will probably decide the financial behavior of people in the coming months.
Consumer confidence vs willing to purchase durable goods
(; click to enlarge

This also becomes clear in the last chart: during the last four years, you can clearly see that the willingness of people to do large purchases is often lagging the consumer confidence, for better and for worse. As the consumer confidence deteriorated over the last month, I expect the ‘willingness-indicator’ to do the same, during the next months.
These figures are all very negative. And according to me, it would be too easy to describe these feelings as ‘being mainly driven by the stock markets’, like the CBS does.
In my opinion (which is formed by findings of a.o. professors Todd Harrison and Kevin Depew of Minyanville (; both extremely smart people), the socionomic mood drives the direction of the stock markets; not the other way around.
People get a tendency of becoming more negative when the news is negative, but it goes too far to state that the stock markets are the mainly responsible party for the negative attitude.
I would rather say that mood has been deteriorating, due to the clear unability and/or unwillingness shown by Europe and the US, to solve the political problems surrounding the PIIGS-countries and the debt ceiling. People are smart enough to understand that these events have implications for the economy of The Netherlands, but are also smart enough to notice that their personal, financial situation will probably not suffer from this very much.
However, caution pays: that is the reason that the willingness to do large purchases follows the consumer confidence quite closely.

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