Dutch industry is not yet participating

Production in our industry in March was 6,0% lower in volume than a year earlier. That was a bad setback. The purchasing managers index in industry, as compiled by NEVI, has shown a clear improvement in recent months. That's why I hoped that production would have picked up. Not so.

The 6,0% year-on-year decline was the lowest figure since June 2020. I should note that Easter fell on March 31 this year - very early - and people may already have the week before Easter off taken, resulting in slightly less production than usual. This is a comment in the spirit of 'the last straw', because CBS claims that the figures have been corrected for the season and for calendar effects.

The different sectors register very different growth rates. Production of clothing and in the paper industry was higher than in March 2023 (3,8% and 5,1%, respectively). Production in the chemical industry was also higher than a year ago. The now sharply fallen energy price obviously plays a role in this. However, do not forget that chemical production in March was more than 19% lower than the highest level reached in June 2018. The European gas price already started to rise in the second half of 2021. The production level in the chemical industry was still about 13% lower in March this year than in the first half of 2021, despite the fact that the gas price has fallen sharply since the second part of 2022. It is starting to look like we are losing some of the lost production forever.

Furthermore, there were quite a few sectors with significantly lower production than in March last year. Base metal: -19,0%; building materials: -16,2%; repair and installation of machines: -15,5%; means of transport: -13,4%, to name a few.

In Germany things are not going well for the industry either. The production level there in March was 3,3% lower than a year earlier. Order receipts also fell again. In Germany, energy-intensive sectors are (even) more important than in our country. Destatis, the German CBS, reports specifically on production in the five most energy-intensive sectors. Production there was 9,0% higher than at the low point, but, just like us, the production level in March was about 13% lower than in the first half of 2021.

As previously reported, our inflation in April was 2,7%. In March it was 3,1%. The explanation on the CBS website draws attention to the fact that bungalow parks, campsites and the like were 5,2% cheaper in April than last year. In March it was still +16,0%. The weight of this category in the inflation basket is more than 1%. Although only a limited part of our income is spent on this, such a turnaround does have a noticeable impact on the total figure. You can say that inflation has fallen by 0,4 percentage points (3,1% minus 2,7%) in one month and that half (!!!) of that was due to bungalow parks, etc. The explanation for this lies again with the early Easter this year. Of course, it means that we should not immediately become euphoric about the decline in inflation.

In its quick estimate, Statistics Netherlands had already reported that inflation for 'food, drinks and tobacco' had increased slightly in April. That surprised me because food inflation has been weakening for some time. It now turned out that the culprit was mainly drinks. It appears that the tripling of the sugar tax as of January 1 will be gradually passed on to consumers.

The main driver of inflation currently is services inflation. Although this has fallen from 4,6% in March to 4,0% in April (the prices of bungalows also play a role in this, of course), the decline in inflation has stalled in some labour-intensive services. I have put a few random price ranges in pictures below. I'm repeating myself, but I note that the fight against inflation has not yet been won.

Chinese international trade is picking up
In April, China's export value was 1,5% higher than a year earlier. That is modest, but much better than the -7,5% recorded in March. The growth was mainly in ASEAN countries (+8%) and Taiwan (+4%). The value of exports to a range of other countries actually fell: Japan (-11%), Australia (6%), Korea (-6%), Europe (-4%) and the US (-3%). We see the same picture with imports: +8,4% in April compared to -1,9% in March.

Number of applications for American unemployment benefits increases significantly
The US labor market is robust. Employment is growing quite rapidly. That's the prevailing narrative anyway. I have written before that there are some cracks in that picture. The number of jobs is increasing, but the number of full-time jobs is decreasing. In the last week of April, the number of applications for unemployment benefits unexpectedly rose sharply. A number of 231.000 is certainly not worrying and the weekly figures can be volatile. But this was still the highest number since August 2023.

Closing
A quick comment this (short) week. The global economy is improving. This also applies to our country. Unfortunately, our industry is not yet participating in this. It is too early to claim that this is a manifestation of deindustrialization. I am certainly not in favor of (further) deindustrialization, so I really hope that we will soon see better figures in this sector.

We do see slightly better figures in Chinese foreign trade, hopefully confirming that the international economy is improving.

The American economy has been surprising for more than a year with stronger growth than expected. Still, I have my doubts about its shelf life. The latest figures on unemployment benefits increase my distrust.

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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