Netherland: Dip in household consumption, but more jobs in the Netherlands

Recent monthly figures are somewhat mixed, but still show that the Dutch economy is experiencing a period of strong recovery. Dutch trade figures were particularly positive. Despite international uncertainties, in February the volume of exports of goods increased strongly by 1.8% m-o-m (own seasonal adjustment). Momentum (3m-o-3m increase) is presently at 2.3%, a increase rate last seen at the start of 2012 (see figure 1). The volume of exports of goods is up 7.9% compared to February 2016.

A reason for this high export increase may be stronger a rise in exports to nations outside the Eurozone and EU. However, we expect that in the coming months export increase will slow somewhat as the request for imports in the US and the UK will decline. The pound’s depreciation is making Dutch export products relatively expensive for households and businesses in the UK. And while the US economy is expected to grow substantially next year, Dutch exporters may not benefit as the increase will primarily be in domestic investment and consumption.

Consumption decreased, but conditions are good

In contrast to the strong export figures in February, Dutch household consumption unexpectedly declined by 1.7% in February compared to a month before (own seasonal adjustment). Due to the m-o-m decline in household consumption, momentum turned negative for the initial time in over a time(see figure 2). However, we see the decline in consumption as a temporary setback.

Conditions for consumption are still favourable and have even improved in the completed months. Household consumption is mainly linked to consumer expectations, the development of disposable gain and their (financial) assets. All three point to higher consumption increase. Consumer confidence further increased in April and is presently at the highest level since 2001, while its sub-indicator measuring how households perceive the current economic climate is even at its highest level since measurements began in 1987. Meanwhile household’s disposable gain is rising, with strong employment increase and real wage increase. On the investment side, the stock market is performing well and so is the housing market. In March, home sales were up 34% y-o-y, while the home price index rose by 7.3% compared to March 2016. That is the strongest price increase in 15 years.

Inflation dropped sharply in March

An extra figure that stood out was the sharp inflation drop in March. Dutch headline inflation decreased from 1.7% in February to 0.6% in March (see figure 3). That’s the major m-o-m decline in additional than three years. Although most of this decline is due to temporary factors, it as well shows that upward price pressure is still rather weak. One of these temporary factors, responsible for a 0.5ppt decline in inflation, is lower clothing prices. This has to do with shops having sales in March. Additionally, the y-o-y increase in fuel prices was less strong in March. Since most of the decline in inflation is temporary, we expect inflation to increase again in the coming months. However, core inflation (excluding rent) is presently negative again, showing that upward price pressure remains weak and may be additional structural.

Employment keeps rising

Positive developments in the real economy are resulting in additional jobs. The unemployment rate fell from 5.3% in February to 5.1% in March as the number of Dutch people with a job increased by 26,000 compared to a month before (see figure 4). The unemployment rate is presently 2.8ppt lower than at the peak in the beginning of 2014. We expect the unemployment rate to further decline to 4.6% on average in 2018.