Today the NEVI, the Dutch association of Purchase Managers (www.nevi.nl), reported its monthly Purchase
Managers Index. This index is a tell-tale signal for the consequences
of stalling consumption; a consumption that will only become worse when the
zero wage increase-policy is maintained. Here are the pertinent snips:
Considerable drop in
new orders: NEVI Purchase Managers Index (PMI) is 49.6
The NEVI PMI was 49.6
in March, compared to 50.3 in February. This points towards a further
deterioration of circumstances for companies.
The number of received
new orders dropped. The domestic demand was limited, but the orders from abroad
increased. The production volume remained unchanged. The arrears in production
dropped considerably and the supply of finished products in March increased for
the first time since August 2011. The workforce increased for the first time in
six months. The purchase cost inflation was the largest since June 2011. The
sales prices increased considerably, but not sufficiently to compensate
increase purchase costs. Purchase activities dropped. In spite of that the time
of delivery increased for the third month in a row.
After a slight
increase in February, there was a substantial drop in the number of received
new orders. The market demand was very low, especially for domestic orders. Many domestic
customers postponed or even cancelled their orders. According to the
latest data, it is the eighth time during the last ten months that the number
of newly received orders dropped at the Dutch production companies.
In spite of the
smaller number of received orders in March, the Dutch production companies
contracted more personnel. This points to a certain confidence in the outlook
for the number of orders. The employment in this industry increased
substantially. This was the first expansion of the workforce in six months, due
to an expected increased of sales and enduring efforts to reduce arrears.
There you have it, in the red and bold text: the
consequences of dropping consumer confidence and consumer demand. At this
moment wage restraint or even a zero wage policy is not yet official policy;
can you imagine what this brainless policy will do for domestic demand? I can!
Although US demand increased, it is not at all enough to
compensate the dropping domestic demand and the weak demand from the
South-European countries that have been very important customers during the last ten years.
The companies in the aforementioned investigation seem to have
trust in improving circumstances, as they contracted more personnel, in order to
meet increased future demand and to reduce their arrears.
However, I truly doubt that these companies are right. I don’t
see much signals for improvement in 2012, just like I didn’t in 2011. And as most companies are not stupid, I
seriously doubt if any of these newly contracted workers received a fixed contract.
It is of course quite easy to get rid of excess personnel when everybody involved has a temporary
contract.
There is hardly any real improvement; not much in Europe and
not at all in The Netherlands, where the Dutch consumer sits on his hands. In
my opinion, the success at the European stock exchanges in 2011 can only be owed
to the Greek debt deal, perhaps to an oversold stock market at the end of 2011 and especially to the more than generous lending program of the ECB, where the banks could borrow
‘money virtually for free’. It was like investing millions of dollars in order to catch two hundred grant.
In this case, the hard-learnt lesson of many investors is
that of the game of musical chairs: dance while the music plays, but be
prepared to grab an empty chair immediately after it stops. I would not be
surprised if the music had already stopped for 2012 in The Netherlands.
There was also news from the Dutch Central Bureau of
Statistics (www.cbs.nl) about the Dutch
consumers. One message was already published last Friday:
The disposable
household income has dropped for the fourth year in a row. Adjusted for
inflation, the disposable household income dropped 0.4% in 2011, the same as in
2010 and this was largely caused by the fact that the wage increase of 1.8% was
below the level of inflation (2.3%). Higher contributions to health care
insurance schemes and pension schemes also had a negative effect on the
disposable household income. As household incomes declined, consumer
expenditure dropped by 1.1%.
The total financial
capital of households rose by 52 billion euro last year and for the first time
in history the 1 trillion euro barrier was broken. This includes the capital
owned by pension funds and life insurance companies. The value of shares owned
by Dutch households was reduced by 27 billion euro due to purchases and falling
share prices. The investment portfolios held by pension funds and life
insurance companies, on the other hand, increased by 77 billion euro. At the
same time, the total mortgage debt increased by 13 billion euro to a total of
665 billion euro, which is the lowest increase since 1995. This is due to
stagnation on the housing market.
The conclusion of this article is: Dutch people might actually have
become richer in 2011, but they have definitely less money to spend. Their
money is stored in (in)voluntary savings, like the pension funds, amortization of mortgages and private savings accounts and in rising healthcare costs. Imagine again what a zero percent wage increase-policy might do for
disposable income with an inflation of 2-3%.
A second article of the CBS concerned the soaring number of
debt restructurings in The Netherlands:
In 2011 almost 15,000
debt restructurings have been verdicted. This is almost 30% more than in 2010.
Herewith the increase, that started halfway 2009, continues firmly. After a few
years of reduced numbers of debt restructurings these are back at the level of
2005-2007. Judges verdicted almost 15,000 debt restructurings in 2011, which
were 3,300 more than in 2010. These were mainly private citizens, in contrary
to the second half of 2010 when these were mainly ex-entrepreneurs.
 |
| Debt restructurings in The Netherlands 2005-2011 Source of data: www.cbs.nl Chart made by ernstseconomyforyou.blogspot.com Click to enlarge |
The increase of the
number of debt restructurings comes together with a less favorable economic
climate. More companies default and more people lose their jobs. Also a long-lasting
situation of double housing costs and less courtesy at creditors are possible
explanations for the increasing number of debt restructurings.
I guess that I was right when I predicted that 2011 would be a
very hard year for The Netherlands. In my opinion the economic situation will
become worse and worse, especially with the current lackluster and indecisive Dutch government, locking itself up for almost one month to postpone the inevitable decisions on additional austerity measures and measures to spur economic growth.
The CDA-VVD government,
with, as its silent partner, the PVV of Geert Wilders has taken a refuge in the Catshuis, the official residence of the Prime-Minister. The parties involved discuss the direction of the
€16 bln in additional austerity measures that are necessary in
order to meet the 3% deficit-ceiling on the state budget that is required by the European Stability and Growth
Pact.
While it is especially clear where the current government doesn’t want to
take measures (namely at the totally messed up Dutch housing market and in the retirement
age of 65; both issues where interferance is needed most), it is not clear at all where the
government does want to take measures.
As a matter of fact, it might take until the end of April before
some light has been shed at the additional austerity measures that this
government will take. Decisiveness is a concept of which the Mark
Rutte-government is seldomly accused.
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