China continues to run happily, US economy dynamic

The number of corona infections is falling, but excruciatingly slowly. Dutch unemployment is falling slightly and consumer confidence is also improving slightly. China continues to run happily and the US economy is remarkably dynamic despite the third wave. What does this economic week signify?

While the second wave of corona and tightened restrictions on public life are taking their economic toll in Europe, the recovery is continuing in China. The question is whether this positive trend can be maintained now that the recovery elsewhere is stalling. The US still occupies an intermediate position. That country is now in a third corona wave without much leadership. Nevertheless, the economy remains remarkably dynamic for the time being. Of course there is light at the end of the tunnel, but we are not there yet. The risk is that it will get a little darker in the short term.

Very slow
The restrictions on our public life are bearing fruit in terms of the number of corona infections, etc. in our country. But it is disappointingly slow. In the spring, the peak in hospital admissions, ICU admissions and deaths was higher than now, but the numbers also fell faster. The occupancy rate in the ICs, as the RIVM reports on the corona dashboard, has actually been slightly above 50% for some time and does not change much. That gives food for thought and makes it less likely that the restrictive measures will be relaxed quickly and significantly.

The third corona wave is raging in South Korea and the Korean government has tightened various measures. The number of new infections has risen above 3 in the last 300 days. The total number of deaths is now 501. By comparison, we have approximately 5.000 infections per day and an official death toll of 8.771. Keep in mind that Korea has almost 52 million inhabitants, three times the Dutch population.

Converted to our country, Korea therefore has more than 100 new infections per day. And they are tightening restrictions, while the prime minister speaks of a crisis situation. If we had 'only' 100 infections per day (I know it also matters whether that number increases - as is the case in Korea - or not), we probably raised the flag and threw public life completely or certainly largely open. So you see, the differences are big.

The economic differences are also large
The described difference between the Netherlands and Korea is also reflected in economic differences between Europe and Asia. Industrial production in China was 6,9% higher in October than a year earlier. That was the same percentage as in September and it is above the average growth rate of recent years. The Chinese economy is continuing its recovery and is gradually making up for lost production earlier this year.

The demand side of the Chinese economy is also showing further recovery. Retail sales in October were 4,3% higher than a year earlier. That is clearly lower than has been the case in recent years, but still slightly better than the 3,3% in September. Car sales are always a clear indicator of the economy. The following chart confirms the recovery.

Keep up China's recovery
I'm taking a stab at this one, though. I regularly talk to a few Dutch companies that do business in the Far East. That provides anecdotal material. The comments I hear are less jubilant than the Chinese figures suggest. Now I'm not one to distrust the official figures based on a few anecdotal reports, but with that anecdotal information you can make up a story. Can the Chinese economy sustain the V-shaped recovery if large parts of the rest of the world economy lose momentum?

Take the figures from Schiphol for example. The number of flights and passengers has obviously collapsed this year. However, there was a slight recovery between April and August, but since then things have collapsed again. Passenger numbers are more than 80% lower than last year. The downturn in the last two months is symptomatic of economic activity, not only in the Netherlands, but also in the eurozone as a whole. Fortunately, 'freight' is clearly less bad.

Unemployment is falling
The support measures taken by the government have prevented a sharp rise in unemployment. Just as they prevented a rise in the number of bankruptcies. In fact, the number of bankruptcies this year is lower than last year, as I mentioned last week. It now appears that the official unemployment rate also fell slightly again in October: 4,3% against 4,4% in September and 4,6% in August. Before the crisis, the percentage was 2,9%.

This is therefore a very modest increase from the start of the crisis, especially compared to the US as the following chart shows. Of course, this picture is completely distorted, because we try to keep people in their jobs with the NOW scheme. While in the US you have to be unemployed to benefit from the extra support. The low unemployment rate in our country thus paints a rosier picture. An increase is likely in the course of next year. When the crisis is over, the number of bankruptcies rises and the support measures cease.

Consumer confidence in our country has been extremely low for months. The figure reported by Statistics Netherlands for November shows a modest improvement: -26, after -30 in October. Consumers are clearly not very happy yet.

Remarkable dynamism US economy despite third wave
The US is experiencing a third wave of rising numbers of infections and deaths. In relative terms, that is, adjusted for population size, the US numbers are no worse than ours, but the trend is certainly not good. Due to the political leadership stalemate, no additional restrictive measures are currently being taken by the federal government. Maybe local authorities do, but you hold your breath.

Still, it doesn't seem to be hurting the US economy much. Admittedly, the latest unemployment benefit claim figures have been less favorable and consumer confidence is weakening somewhat. Against this, there are some strikingly positive developments. Firstly, the housing market remains strong. The National Association of Home Builders (NAHB) confidence index rose to 90 in November, from 85 in October, its all-time high I can tell. The number of homes under construction is also showing a strong recovery.

Business credit conditions
Earlier I mentioned the remarkable recovery in corporate investment in the US. Something else was added recently. The US central bank, like the ECB and other central banks (but to my knowledge the Fed was the first) conducts a quarterly survey of commercial banks asking about changes in credit conditions for business loans, among other things. This turns out to be a valuable indicator.

A clear and sudden tightening of credit conditions by banks is usually the harbinger of a cyclical downturn. The results for the third quarter are positive. The percentage of banks tightening credit conditions has clearly fallen. Though there is still a way to go. Nevertheless, the Fed can be satisfied, because the improved situation is certainly partly due to the actions of the Fed.

Net percentage of banks that say they are tightening credit conditions for business relationships

Hans de Jong

Han de Jong is a former chief economist at ABN Amro and now a resident economist at BNR Nieuwsradio, among others. His comments can also be found on Crystalcleareconomics.nl

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