Consumer confidence closely matches sentiments at the stock exchange
Each month Statistics Netherlands measures consumer confidence. There are various aspects that play a role in it, such as expectations about unemployment, share prices, house prices and the inflation rate. Since the late nineties there has clearly been a link between the developments of the AEX index and consumer confidence. Consumers became much more involved in the stock market at the time. This is not only because many more private individuals trade shares directly, but also indirectly via the pension funds.
Consumer confidence rises when share prices go up
Each month Statistics Netherlands surveys the mood among consumers through a household survey called the Consumer confidence survey (CCO). Since the late nineties the consumer confidence indicator runs pretty much parallel to the AEX index even though the units observed don’t match. In the period before that the two did not run parallel.
AEX index and consumer confidence
When the situation at the stock market deteriorated at the end of 2000, pessimism among consumers increased. At the start of 2003 the AEX index reached a record low, after which share prices recovered and consumer confidence increased again. In June of 2007 the consumer confidence indicator went up to 18. Confidence in the economic future and the willingness to buy had not been as high as that in years. The AEX index also reached its peak. In September 2007 consumer confidence collapsed, in part due to the credit-related losses in the USA.
More and more private investors
The link between share prices and consumer confidence can be ascribed in part to the fact that consumers become more involved in the stock market. Two decades ago investments were a thing for professionals. In the mid nineties more and more private individuals started trading shares, either through investment funds or as independent private investors. At the start of 1995 some 712 thousand household operated on the stock market, but at the start of 2001 this had doubled. Developments at the stock market have become increasingly important for consumers, since they have a direct financial interest in them. The number of households with shares barely fell when share prices dipped in 2001 to 2003.
Number of households with shares
Insecurity about old age provisions due to problems with pension funds
Households were also involved in the stock market through their pensions. In the nineties the portfolios of the pension funds grew substantially. This made that developments in the share prices indirectly became a key factor in consumer sentiment.
Value of stock portfolio of the pension sector
This became clear in 2001 and the following years, when the stock market crises cut the degree of coverage the pension funds had. Some pension funds turned out to have fewer buffers than expected to compensate for the risk of investments. This issue was covered extensively in the media.
Expected unemployment and the AEX also closely matched
The relationship between consumer confidence and the AEX index clearly shows when certain questions that make up the CCO survey are analysed. One question in the monthly survey is “How do you think unemployment will develop in the Netherlands over the next twelve months? Will it increase, decrease, or stay the same in your opinion?” Since the late nineties a clear match with the developments of the AEX index has emerged.
Expectations surrounding unemployment and the AEX
In the months August-November of 1998 the AEX fell by about 60 points, mainly due to the Asia crisis. The expectations of unemployment rose considerably in these months. As the AEX index recovered, the percentage of consumers who expected a rise in unemployment fell. A similar development was observed three years later at the end of 2001.