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Wednesday, 22 April 2015

Hans de Boer, the flamboyant chairman of employer’s organization VNO/NCW is very optimistical about the Dutch economic growth. He might have a point indeed, but he should carefully watch when the music stops….

You're all invited to the party
You know you didn't have to come
No rotten apple gonna spoil my fun
If you don't like what you see here
Get the funk out

It is hardly a secret, that during the last four years my stance has mostly been at the bearish side of the balance, with respect to the Dutch economy. Too often during this period, the economic crisis was declared finished by well-respected pundits, only for us to see a rebound of it a few months later.

My point was traditionally that there had not been enough of the necessary structural changes in the Dutch economy to logically declare a return to autonomous growth.

Nowadays, however, there is a wide array of improvements visible in the Dutch economy, at different areas. And although there is neither a strong impulse from an important economic development (i.e. such as the emerging of the world wide web or the development of the microprocessor) nor a structural driver for jobs (i.e. autonomous economic growth, based upon higher productivity and improved efficiency), it seems that the European quantitative easing program has done the job, in combination with the weaker Euro.

Buying European stuff is simply much cheaper nowadays (exports(!)) and the positive impulse of QE(EU) at the European stockmarkets is unmistakenably. Nevertheless, it is sensible to not forget that this economic revival is like a Roman Chair Dance: you can continue dancing for as long as the music plays, but don’t forget to always keep a keen eye upon an empty chair.

In other words, one should consider that this economic growth is probably the result of quantitative easing and quantitative easing alone: when the program stops, growth could be gone again.

One of the people who has a happy smile on his face these days, is the flamboyant chairman of employer’s organization VNO/NCW Hans de Boer

Hans de Boer of VNO-NCW during a broadcast
of BNR Newsroom in September, 2013
Picture copyright of: Ernst Labruyère
Click to enlarge
In the past, Hans de Boer was chairman of the steering group for youth unemployment and he is still very much involved in the subject. And particularly in the area of youth unemployment great progression has been made of late.

And for him, in his current role as chairman of the employers, the economic revival is also very good news. Exports are soaring again, consumption seems finally on the way back to better results and the housing prices have shown a rising pattern for almost a year in a row now.

So, it is good news all the way for him. Or isn’t it, after all?!

De Telegraaf:

Party-time in the economy! Our country is doing much better than anticipated earlier. While the Dutch Central Planning Bureau is expecting a general growth figure of 1.7%, the employers’ organization VNO/NCW is much more optimistical.

Chairman Hans de Boer is reckoning with a growth rate of at least 2%, which would bring us at the highest growth level since the economic crisis started in 2008. “Our economy is really doing much better than anticipated. My members told me that”, according to De Boer. “I have never been so optimistical about entrepreneurship in our country, as nowadays”. The improving economy is good news for employment and consumer confidence. On top of that, domestic spending will further increase.

These days, Hans de Boer certainly got what he wanted, albeit with a few important snags. Consumption had indeed increased considerably, but in spite of De Boer’s optimism, the consumer confidence had dropped (un)expectedly.

The following snippets come from the Dutch Central Bureau of Statistics:

In February, consumers spent 2.4% more upon goods and services than one year earlier. This is the largest increase in four years time, according to the CBS today. Consumers spend more money on gas, clothing and home furnishing. Consumer confidence dropped slightly in April, month-on-month. Consumption data have been adjusted for price changes and changes in the number of purchase days during this period.

In February consumers spent 4.1% more on durable goods than one year before. They especially spent more on clothing and home furnishing. Last week, CBS already published data which showed that fashion shops had higher year-on-year sales, for the first time in half a year.

In April the circumstances for consumption by Dutch households have once again improved month-on-month. The confidence of entrepreneurs in the manufacturing industry, with respect to future employment, has improved considerably. Stock ratings and housing prices have increased year-on-year. However, consumers were slightly more negative regarding future employment.

The mood among consumers slightly deteriorated in April 2015, in comparison with March. The consumer confidence dropped by 2 points to 0, which means that there are equal numbers of optimists and pessimists among the consumers. This slight deterioration is mainly caused by a dropping confidence of consumers in the Dutch economy and a declining willingness to purchase goods.

Domestic consumption by households,
adjusted for shopping days
Data and chart courtesy of:
Click to enlarge

Consumer confidence, seasonally adjusted
Data and chart courtesy of:
Click to enlarge

Oops, the last paragraph could be a small blow for De Boer’s good news story, although it can’t come unexpected.

There are still considerable reorganizations going on in the financial and construction industry – especially among banks and insurance companies, as well as construction companies not involved in residential real estate – and a number of companies is definitely busy to dismiss its workers from temporary labour agencies befory July 1st of this year, in order to prevent themselves from the obligation to pay transition payments.

Yet, there has been quite a lot of other good news, of late. See the following snippets from a number of older publications from the CBS:

The Dutch Central Bureau of Statistics announced today that the volume of exports of goods was 6.6% larger in February 2015 than twelve months previously. The growth was somewhat lower than in January. Exports of transport equipment, natural gas, and oil products grew by most in February. Exports of Dutch products as well as re-exports were higher than in February last year. The volume of imports was 0.5% larger in February than twelve months previously. In January, imports rose by 1.3%.

According to the Central Bureau of Statistics’ Exports Radar, circumstances for Dutch exports improved in April 2015 from March. The real effective exchange rates on an annual basis were far more favourable than in the previous month. Producer confidence in the eurozone and Germany was less negative than in the previous month.

Exports of goods (volume
adjusted for working days)
Data and chart courtesy of:
Click to enlarge
Exports have profited dramatically from the depreciation of the Euro, as a consequence of QE(EU). As long as the wages remain stable in The Netherlands, the export to non-Euro countries within the EU as well as outside the continent will remain soaring. However, this “success” has little to do with successful policies of Cabinet Mark Rutte II, as Hans de Boer stated in another article, and everything with quantitative easing Mario (Draghi)-style.

The Central Bureau of Statistics announced today that retail turnover was 1.2% up in February 2015 from the same month last year. Retail sales (volume) continue to grow, by 3% in February. Retail prices fell by 1.8%. Turnover and sales generated by food, drinks and tobacco shops and non-food shops improved in February.

Within the non-food sector, chemist shops and home furnishing shops reported higher turnover figures. This was also the case in the preceding months. For the first time in six months, clothing shops also achieved better results. Consumer electronics shops recorded a 3% turnover loss, versus a turnover growth by nearly 4% in January. Turnover results realised by household appliances shops, DIY shops and textile supermarkets were again below the level of the preceding month in February.
Supermarkets almost entirely accounted for the turnover and volume growth in February. Turnover generated by specialist shops hardly improved relative to one year previously. Mail-order firms and online shops saw turnover rise by more than 12% compared to February last year. The growth rate was higher than in January.

Turnover, price and volume
developments in February 2015
Data and chart courtesy of:
Click to enlarge
This information also paints a quite schizophrenical picture of the Dutch consumption. While especially clothing and home furnishing shops, as well as supermarkets show a very favourable picture for the first time in a long period, the consumer electronics shops and stores for household appliances and DIY articles present less favourable data. In my humble opinion, it seems yet much too early to declare the crisis to be defenitely finished, based upon these consumption data alone.

On top of that, there is still a firm hint of deflation in the price development, as you can see in the aforementioned chart. Although many pundits want you to believe that this is caused by the development of oil prices alone and nothing else, please don't believe them.

The Central Bureau of Statistics announced today that the number of people who found jobs has grown by an average of 6,000 a month during the past three months. Most people who found work are young. The labour force remained fairly stable during that period. As a result, the number of unemployed was reduced by an average of 6,000 a month.

Total and employed labour force
Data and chart courtesy of:
Click to enlarge

Figures provided by the Employee Insurance Agency indicate that last month, 443,000 unemployment benefits were paid, i.e. 12,000 down from February.

Last month, 626,000 people were unemployed. They were available for the labour market and looking for work, but they could not find work; 7.0% in the labour force were unemployed, versus 7.2% three months ago. The rest of the 15 to 74-year-old population (3.8 million individuals) did not have work and were not looking for jobs, the so-called non-labour force.

More young people found work. In the first three months of this year, the number of employed 15 to 24-year-olds rose by an average of 10,000 a month. The number of young people working twelve hours a week or more has also increased. Over the past three months, the unemployment rate among young people was reduced from 11.8 to 10.8%. The Employee Insurance Agency reports that the number of unemployment benefits also declined, in particular among 15 to 24-year-olds.

Labour force by age: average
monthly change over three months
Data and chart courtesy of:
Click to enlarge
Nearly two in three working young have flexible employment contracts (see second graph). The ratio is much higher than among over-25s. Nearly three in ten young people have permanent employment contracts and fixed working hours, as against nearly seven in ten working 25 to 74-year-olds.

Position in the working environment by age
Data and chart courtesy of:
Click to enlarge
 The number of employed people also grew among over-45s, though less rapidly than in the young population (see the aforementioned chart). In the first months of 2015, the number of working over-45s rose by an average of nearly 2,000 a month.

There were two very important snags in this CBS good news-article about the labour market, which it definitely is in my humble opinion. First, the employment among 45+ workers did not grow so hard as the employment among youngsters. While I am very happy that so many more youngsters find a job these days, the age group of 45+ is still extremely important for domestic consumption.

This is caused by the fact that this group has the highest salary and consequently the most spending money in general, but also has the highest expenses, due to generally higher consumption, higher spendings on food, beverage and hospitality, growing and studying children, expensive family holidays, as well as different labour circumstances (a higher rate of commuter traffic).

Therefore this statement upon the diminishing unemployment is not such good news as it seems initially.

The second snag is the excessive number of temporary and flexible contracts among youngsters. Only about 3 in 10 youngsters have a fixed contract these days and it is not plausible that this number will rise very soon.  The flex and temporary labour contracts of the vast majority of youngsters mean that they can be fired very easily, when the economy or the relative position of their employer requires that. This is not a firm base for durable economic growth.

Summarizing, I fully understand where the positive feelings of Hans de Boer come from and I agree with him that there are some very positive signals indeed. Yet, I am not so optimistical about the Dutch economy as he is. There are simply too many snags in the CBS data from the last few weeks.

As I told before on a few occasions, there is neither a strong impulse from an important economic or scientific development nor a structural driver for jobs in the economy. The current answer to all questions seems to be quantitative easing, Mario style. 

Therefore my advice to Hans de Boer is: enjoy the dance while the music plays, but always prepare to grab a chair when it stops.

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