Calm before the storm: uncertain economic outlook

As I write this, storm Éowyn is raging around our house on the east coast of Ireland. So the title of this commentary is completely wrong. But it refers to something else. The schools and shops are closed here today. Fortunately, we have power, heat and water. Nothing can happen to us and 'the show must go on'.

Donald Trump has started his second presidency like a man possessed. He is raging even worse than storm Éowyn. So much has been said and written about him that I will leave him alone for a moment. I am looking forward to Fed Chairman Powell's press conference next Wednesday. When he was confronted with questions about Trump in recent months, you could see him suffer. That will not have improved. I feel sorry for him.

Things are not going well for the Dutch consumer. Of course, prices are high, but wages have risen accordingly. Even more so, so households have experienced a considerable increase in their purchasing power in recent times. Nevertheless, consumer confidence fell again in January. A score of -28 was on the boards, compared to -26 in December. That -28 was the lowest since January 2024. However, the Dutch consumer is not alone. The Belgian consumer is also gloomy. The Belgian consumer confidence index even reached its lowest level in two years in January. The graph shows that consumer confidence in both countries is moving quite in tandem with each other. In the eurozone as a whole, consumer confidence actually improved a fraction: from -14,5 in December to -14,2 in January. As a result, the index remained clearly below the average since 1986, -10,6. In the rest of Europe, the smiley faces are not yet dominant either.

European purchasing managers in industry have also been in a minor mood for some time. That is to say, the PMI for industry has been below 50 for more than two years. There was a slight improvement in January. In Germany, the purchasing managers index in industry rose from 42,5 in December to 44,1 in January. In France, it went from 41,9 to 45,3 and in the eurozone as a whole, 48,3 was recorded in January, compared to 47,5 in December. The composite index for the eurozone, i.e. for industry and the services sector combined, rose from 49,6 in December to 50,2. Hopefully, this is a sign of the expected acceleration in growth.

US is growing, but there are weaknesses
The US economy has been growing by around 3% for several quarters in a row. For the current quarter, the Atlanta Fed GDPNow also indicates 3,0% growth. However, there are also indicators that show a weakening. The number of new applications for unemployment benefits remains remarkably low, but the number of continuing benefits is increasing. In the week of January 6, that number remained just under 1,9 million. That was the highest since November 2021.

When Alan Greenspan, the famous former chairman of the Fed, started his career, he had his own company. He focused on tracking short-term economic indicators. One of the things he looked at was the movement of goods within the US. For example, he looked at the tonnage of road freight, as shown in the following chart. Up until the pandemic, there was a clear upward trend. But since then, things have been more difficult, despite the surprisingly strong GDP growth figures. Things have not improved much over the course of 2024. In December, road freight was down more than 3% compared to a year earlier.

Taiwan before the storm?
Stronger figures are being recorded elsewhere in the world. For example, the value of Taiwanese export orders in December was more than 22% higher than a year ago. There was probably a base effect here, i.e. orders in December 2023 would have been quite meagre. Strikingly, orders from the US increased the most. This may be caused by the threat of import duties. A breakdown by product group shows that the electronics sector in particular managed to book significantly higher export orders (+33,5%). I assume this is related to AI.

Closing
The immediate outlook is extremely uncertain due to the unpredictability of Trump’s policies. The Fed meets next week to discuss interest rates. They will undoubtedly remain unchanged, but the president will not be happy about that.

Dutch consumers are becoming more gloomy despite the improvement in purchasing power. A low level and decline in consumer confidence does not necessarily translate into less spending. But we are hoping for stronger consumer spending to support economic growth.

The US economy is growing steadily and Trump's policies will give it a boost, I suspect. But there are also vulnerabilities in the US economy.

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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