Dutch consumers keep their hands in their pockets, while political parties, employer’s organizations and even a labor union call for zero wage growth… for everybody. The wrong medicine for the right problem

Yesterday, The Dutch Central Bureau for Statistics (www.cbs.nl)  presented the consumption data for January 2012 in The Netherlands. The data were reassuringly bad, proving that the consumers’ strike and thus one of the main causes for this crisis in The Netherlands is far from over yet.

Here are the main data:

Decline in household consumption continues

Household spending on goods and services was 1.7% down in January 2012  on twelve months previously. The decline is about the same as in the preceding months. Consumption figures are adjusted for price changes and differences in the shopping-day pattern.

Spending on goods was nearly 4% below the level of January 2011. Due to the mild weather, natural gas consumption was considerably lower. Spending on durable consumer goods was 4% down. Consumers spent less on new cars. Spending on food, drinks and tobacco was nearly 2% down. Spending on services was approximately on the same level as one year previously.

Domestic household consumption (volume, adjusted for shopping-days)
Source: www.cbs.nl
Click to enlarge

The CBS prints here a general overview of y-o-y consumption, but I wanted to split-up the general data into different categories of goods and services, in order to look where the big differences would be.

This was possible with the base data in the wonderful Statline database of CBS. The following chart is based on CBS data; it’s an inflation-corrected moving average from January 2007 until January 2012 for the main categories of goods.

Consumption value index 2007-2012, inflation-adjusted
Chart by ernstseconomyforyou.blogspot.com
Data source: www.cbs.nl
Click to enlarge

What immediately stands out in this chart, are the following facts:

• The very strong decline in the sales data of durable goods and the seasonal pattern in it that developed since the crisis began.
• Especially during the sales periods, people bought clothes, but skipped durable goods, instead of purchasing both what happened in the years before the crisis. Durable goods had to wait for a few months

• People bought their clothes during the sales period and ONLY during the sales period. The decline that happened in January 2012 y-o-y can hardly be overlooked.
  
• The decline in consumption goods is also very strong; especially Christmas 2011 has been very bad for consumption goods sales
  
• The outlier, with steadily rising sales, is the category food, alcohol and tobacco. The only explanations that I have for this unexpected rise are:
• The rise in food prices is well above the inflation level, which makes sense
• People spent much less money in restaurants, but spent more money on home cooking. This also makes sense.

All in all, the results of the credit crisis on Dutch consumption can be seen very clearly. The effect of the draconic austerity measures to the tune of €10 bln – €16 bln, that are currently prepared by the Dutch government, will be devastating on development of consumption in The Netherlands and will lead  to a further economic contraction.

While stimulus is often the name of the game in the US, it is ‘austerity, more austerity and nothing but austerity’ in The Netherlands. The extremes of both are very wrong.

There had been the steady bunch of fools that advocated for a zero wage increase-policy for workers in The Netherlands: politics and the employer’s associations VNO/NCW (large corporations) and MKB Nederland (small and medium enterprise). These were exactly the people you would expect with such a useless and stupid, consumption-killing plea.

Dutch consumption since 2000 has already been suffering from the very limited wage development in The Netherlands and the plan for a zero wage increase-policy is exactly the kind of plan that drags consumption further in the gutter. You could argue that Dutch workers need instead a wage increase of well above inflation level.

However, today brought an unpleasant surprise to me. The chairman of the Christian Labour Union CNV, Jaap Smit, stated that a general zero wage increase-policy could be bookable. Although the catch of Smit’s plan was that the employers and the high-level management should also stick to the zero-line, this made the plan both impossible and even more ridiculous. Here are the pertinent snips, taken from a Business News Radio (www.bnr.nl) article:

Labor union federation CNV wants to make the zero wage increase-policy bookable.

Labor union federation CNV wants to make the zero wage increase-policy bookable. Under strict conditions, the CNV is prepared to discuss a general restraint in wage development. CNV doesn’t want the workers to foot the bill for the crisis alone. This was written by chairman Jaap Smit of CNV on his personal weblog. He calls on the other labor unions to make this topic also bookable.

‘It should not be true that if we together keep the zero-line for wages, the bill is footed by the workers alone. There should be compensations. We want to have rocksolid guarantees from the employers on getting handicapped youngsters to work. These are currently the victims of the economic crisis.’

Also the high-level managers and owner/director’s should maintain the wage restraint on their own salaries. There should be a higher tax on bonuses to achieve this.

If the labor unions in The Netherlands and especially CNV want to keep their last few members, they tell Jaap Smit to hit the road, because of blatant incompetence and foolishness.

First, the employers and especially the high-level managers won’t stop giving themselves presents, like 10+% wage increases and bonuses! Ever! It’s their raison d’etre.

Second, wage restraint is the worst thing that could happen now. Also for the companies themselves, as most companies earn their main income in The Netherlands. A further stagnating consumption would bring many companies to their knees and this is exactly the way to achieve this.

The only way to spur consumption, while maintaining a restraint on wage increase, is by dropping taxes on labor by at least a few percent. This would be a sensible kind of stimulus.

However, the tax-addicted government and the visionless employer’s associations VNO/NCW and MKB Nederland won’t sponsor such a promising idea, but rather stick to their old and worn-out plan of wage-restraint.