Purchasing managers are suddenly much more optimistic

Dutch purchasing managers suddenly became a lot more optimistic in June. The Nevi index, which measures the mood among Nevi members, rose from 49,0 in May to 51,2 in June. That is quite a considerable increase for a month. The explanation also sounded quite positive; there was talk of a broad improvement in confidence. Given the tense geopolitical situation and the uncertainty surrounding the American import duties, the increased confidence is quite remarkable.

In his accompanying explanation of the figures, Albert-Jan Swart of ABN AMRO speculated about the possible causes. He suggested that we should perhaps mainly look for it in the expansive budgetary policy of the new German government, but also, for example, in the positive developments in the chip sector. Korean export figures seem to be in line with the latter. In June, the export value of Korea was 4,3% higher than a year earlier, after a decrease of 1,3% in May. The positive development is mainly due to chips and especially exports to the EU. These increased by 14,7% year-on-year. Due to Trump's import duties, Korean exports to the US actually decreased by 0,5%. Exports to China, by the way, decreased by 2,7%, perhaps a sign that developments in China still leave a lot to be desired.

What the above graph does make clear, however, is that the two indices of business confidence in industry show a striking, though not unique, divergence. Where the Nevi index rose clearly in June, the CBS measure showed the opposite picture. Such a divergence can never last long.

Albert-Jan Swart's suggestion that the positive development of the order position of companies may be due to the changed economic policy in Germany does not seem to match the development of the order position of German industrial companies. The volume of new orders fell by 1,4% in May compared to April. Orders from the Netherlands in particular were disappointing: -7,8% compared to April. Why would German companies place fewer orders with other German companies and order more in the Netherlands? Okay, it is possible, but it would be remarkable and it raises questions about the sustainability of the optimism among Dutch purchasing managers.

Inflation in our country fell to 3,1% in June. In May it was still 3,3%. We do not have many details yet, but it is clear in advance that the fall is mainly due to the increase in tobacco excise duty that came into effect in April last year, which led to higher prices in June last year. After all, the 'old stock' was still allowed to be sold at the old price. The price increase in the category 'food, beverages and tobacco' fell from 7,1% in May to 4,6% in June. The price increase in services accelerated: from 3,8% in May to 4,4%. It should be noted that the May figure was distorted because the May holiday fell partly in April this year, which meant that everything related to holidays was much more expensive in April and less expensive in May than in the same months in other years.

Inflation in industrial goods fell remarkably sharply: from 1,8% in May to 0,6% in June. When Statistics Netherlands publishes more details, I will delve into the figures to see what caused this. Energy including fuels became more expensive. In May, the price level of that category was still 1,0% lower than a year earlier. In June, it was 0,6% higher. As the following graph suggests, petrol prices should fall in the coming period because the oil price in euros has fallen recently.

Trump continues to draw attention to himself. His "ultimatum" expires on July 9. Countries with which the US has not reached a new trade agreement by then will be hit by the reciprocal tariffs announced on April 2. Trade agreements usually take years to conclude. After all, it is a very complex matter with many details. What kind of agreements can be reached in three months remains to be seen.

In anticipation of the levies, American imports rose sharply early in the year. That movement has now stopped. However, it is noticeable that American imports did not fall below last year's level in April and May. But what is not, can still come.

Meanwhile, the US economy is doing reasonably well. In June, a net 147.000 jobs were created. That was certainly not bad. Unemployment fell from 4,2% to 4,1% and wage growth is moderating further. The rate of increase in average hourly wages fell from 3,8% year-on-year in May to 3,7%. That will please the Fed.

The Fed will be looking at the Big Beautiful Bill with concern. It has now been adopted. I always find it difficult to get a good overview of the content and consequences of these major American budget laws. The prevailing view is that the budget deficit, now almost 7% of GDP, will increase significantly. Trump et al. believe that there are such large 'earnings effects' that it will all be fine. We know that. In the Netherlands, there has also been much discussion in the past about earning effects. These turned out to be mainly theoretical in nature.

Other controversial elements of the law include cuts to Medicaid, which provides health coverage to more than 70 million low-income people, and the continuation of the tax cuts that Trump implemented in his first term.

Closing
Dutch purchasing managers have become considerably more optimistic in June, according to the Nevi index. This does not match the CBS standard and also seems to be at odds with German figures on the order position of companies. On the other hand, Korean figures on international trade do seem consistent with the increasing confidence among Dutch entrepreneurs who are active in the chip sector.

Inflation has fallen from 3,3% in May to 3,1% in June. I expect energy prices to push inflation down a bit more in the coming period. The oil price has weakened considerably in euros in recent months, mainly due to the decline of the dollar.

The US labour market remains strong. Job growth exceeded expectations in June. Trump has put pressure on Republican members of Congress to the point that his budget bill has been passed. It is a controversial package of measures. It is very likely that government finances will deteriorate significantly further. That is not a priority for Trump. The development of US government finances is unsustainable. There is increasing doubt about the (re)financeability of the US government. Rightly so, I think. However, I suspect that the problems will not become acute in the short term. Where else will investors put their money? And the US remains the largest and most dynamic economy in the world.

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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