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Wednesday, 17 August 2011

Is the world heading into a recession? Or were we never really out of the depression, to begin with?

At this moment Europe and the United States seem to head into a recession. The continuing attacks of the financial markets on the sovereign bonds of the PIIGS-countries in the Euro-zone and the bleeding heart-solution for the debt ceiling, disclosed the weakness, dividedness, shameless self-promotion and even egoism of our current leaders: in the US, as well as in Europe. The leaders rather ‘kill’ the economy in their country than giving in to their opponents: the other party (US) or the other countries (EU). In the meantime everybody tries to play the blame-game.

But think of it: if the aforementioned events would not have happened and if the Republicans and Democrats would have been sworn friends, would we not have been in a recession? And if Greece, Italy, Spain, Ireland and Portugal would have been ‘role model countries’ without serious debt issues, would the situation have been much better?
Probably yes, as there would have been much less debt to recover from.

But I doubt if there would not have been a credit crisis: such a crisis is a cleansing process, where people say goodbye to extravagant behavior and excess spending and return to normal, more austere behavior.

Therefore one of the most reliable signals on the state of the economy is formed by the mood of people. The recession is not only in the wallets of people; it is also in the heads and hearts of people. That is one of the valuable lessons I learned from Minyanville (

And although you can’t see (easily) what people think and how they feel, you can see what they do and don’t do. And the main thing that they don’t seem to do since the end of 2008, is consuming like they did before the credit crisis started.

It would take too much time for me to collect significant consumer data from all over Europe. Therefore, I took the data of a country that seemingly wasn’t very impressed by the credit crisis and that was one of the first and most succesfull in the recovering process: The Netherlands. If there would have been a full-blown recovery, the consumption would have returned to 2005-2006 levels, I guess?!

To show these consumer data, I make yet again usage of the Dutch Central Bureau of Statistics ( All presented charts therefore are based on CBS-data:

Sales development retail business Food
(all data courtesy of

Foodstores (other than supermarkets) maintain a positive level compared to 2005, but the swings are much bigger than in the period before the credit crisis. I consider this an austerity signal. The same is the increased sales for supermarkets: these can be considered to be cheaper than foodstores and therefore rising sales is an austerity signal.

Especially if you consider the loss of sales at the specialty food stores: specialty food is often much more expensive than normal food. Scrapping it is a clear austerity signal.
Sales development retail business Non-food
(all data courtesy of
The non-food retail showed clear growth above 2005 levels since the start of 2006. Since the credit crisis set in, the growth is anemic: a clear austerity signal.

Sales development food and beverage industry (no hotels)
One of the biggest victims of the credit crisis is the food and beverage industry (restaurants and café’s). Since the beginning of 2008, its sales imploded, only to return to growth since mid-2010. Although Q2, 2011 misses in the data, I expect a return to negative figures.

Sales and development car trade

Sales volume gas stations
Also the car industry (and as a consequence the gas stations) show the blows of the credit crisis. Although car sales finally exceeded 2005-levels at the beginning of 2011, there was an enormous increase in fuel-efficiency within the car park, since the 3rd quarter of 2009. Of course, this is the result of the tax break for fuel efficient cars, but it is also the result of a ‘return to austerity’. Especially, when you consider that the oil price is not very high currently.

All these charts show in general that The Netherlands hardly returned to consumption on 2005 levels. In my opinion, this means that the recession has perhaps finished in the wallets of the Dutch citizens, but certainly not in their heads and hearts.

Looking at consumption in The Netherlands is one thing; another thing is to look at worldwide exports and shipping. In a world with strongly rising consumption, you would expect exports and shipping to show strong growth.

To take a look if this is true, I show the latest charts of the Baltic Dry Index, courtesy of Bloomberg (

This index shows the cost per metric ton of shipping goods overseas. Although this index is influenced by the availability of container ships and the costs of ship handling at the international ports, you would expect it to be high in an economic prosperous time.

Well, it isn’t. As a matter of fact: it is only slightly above the lowest point of end 2008-2009, when the credit crisis had striken worldwide and more than 8000 points under May, 2008.

Baltic Dry Index YtD (

Baltic Dry Index 5Y (
All these data and charts show that the recession worldwide never really ended and that it is more fair to speak of a depression. We are lightyears away from the consumption of 2007 and I guess those times will be gone for a long time.

1 comment:

  1. Totally agree with you Ernst!
    Consumer confidence is so down. Many are depressed and not willing to spend what they used to pre 2008. I wonder how many years till we will really recover.