Statistics Netherlands publishes monthly figures on consumer and producer confidence. These figures reflect how consumers and producers in the manufacturing industry perceive the economic situation. In addition to describing the economic mood, the sentiment indicators also give a first indication for the development of other key economic indicators.
The figures are released on the same day and are often combined in the media to produce one item describing the national economic mood. The present article examines the two indicators in further detail, how they differ and what they have in common. It also looks at the European Commission’s programme of economic sentiment indicators, which incorporates both these confidence indicators.
Quick gauge of sentiment
The two confidence indicators are released very quickly. They are published before the end of the month they review. Both indicators are predictive with respect to other key economic indicators. Consumer confidence gives a first indication of the direction consumption by households will take, while producer confidence is seen as the first indication for the development of production and investment in the manufacturing industry.
Although both indicators are quick gauges of sentiment, they differ in important respects. These difference should be taken into account if the results are to interpreted accurately.
Consumer confidence is based on a number of questions from the Consumer Confidence Survey. For this survey, every month about one thousand households are interviewed by telephone. The households differ every month. The survey is conducted during the first ten working days of the month.
Respondents are asked a number of questions. Five of these questions are used to calculate consumer confidence. These are questions about
- the general economic situation in the next twelve months
- the general economic situation in the previous twelve months
- the households’ own financial situation in the next twelve months
- the household’s own financial situation in the previous twelve months
- whether it is a favourable time to purchase expensive items (e.g. washing machines).
For the first four categories the answer options are:
- clearly worse;
- slightly worse;
- slightly better;
- clearly better.
Consumers can answer the last question by reporting whether they think it is a favourable, time, an unfavourable time, or neither. All five questions can also be answered by ‘don't know’.
To answer the questions, respondents consider the general economic situation in the country and the financial situation of their own household. For each component question, the percentage of consumers giving a certain answer is calculated. All consumers have an equal weight. Subsequently, for each component question the percentage of pessimists (respondents answering slightly or clearly worse) is subtracted from the percentage of optimists (respondents who think that the situation is slightly or clearly better). Consumers who answer neutrally or who don’t know are not included in the calculation. The unweighted average of the net outcomes of the five questions is the consumer confidence score. Seasonal effects are removed from the figures.
Producer confidence is compiled from answers to a number questions from the Business Sentiment Survey. This monthly survey is conducted by post or e-mail to a permanent panel of manufacturing companies. The questionnaires are sent out one week before the beginning of the month. The companies are asked to respond within two weeks. Companies who do not respond are sent reminders until about the fourteenth working day of the month (first by fax, then by telephone).
The survey asks questions on realisation of production, received orders, opinions on these two factors and expectations regarding production levels, employment and prices. The companies take their own developments and developments on their markets into consideration when answering the questions. The answer options are:
The opinion questions can be answered by:
For the indicator, the balance of positive minus negative answers is calculated. Producer confidence is composed of opinions on stocks of finished products, on orders received and expected production in the next three months. Large companies have a greater weight than small companies in this calculation. Weights are also assigned to the various sectors of manufacturing. In addition, a bias correction is also applied: this is a correction for respondents who consistently give answers that are too positive or too negative. Lastly, seasonal effects are removed.
The above-mentioned differences are summarised in the table below.
|Consumer confidence||Producer confidence|
|Respondents||Households||Companies in various branches of manufacturing|
|Number||Approx. 1,000||Approx. 1,600|
|Sample||Rotating sample||Permanent panel|
|Time of survey||First ten working days of the month||One week before the month up to the fourteenth workday|
|Weighting||Each respondent has the same weight||Large companies have larger weight than smaller companies|
|Periods to which opinions refer||Survey date, previous and subsequent twelve months||Previous month, subsequent three months|
|Aspects to which opinions refer||Own financial sitution and general economic situation||Own company and market|
|Answer options||Clearly/slightly better/worse, unchanged, don't know. Favourable, unfavourable, neither, don't know||Increase, unchanged, decrease. Good, satisfactory, poor|
|Range of values measured||From +27 to -40 (since April 1986)||From +9 to -9,4 (since January 1985)|
Producer confidence slightly ahead
In spite of the above-mentioned differences between the indicators for consumer and producer confidence, the two series have shown very similar developments since 1987. Two aspects should be taken into consideration, though:
- The fluctuations in consumer confidence are about four times as large as the fluctuations in producer confidence;
- Producer confidence often reacts a few months earlier to turning points in the business cycle than consumer confidence.
Possible explanations for the first aspect are the composition of the panel, the formulation of the questions and the answer options. The second aspect can be explained by the fact that because of the open economy in the Netherlands, Dutch companies are more internationally oriented and pick up signals from foreign markets before they are visible in the Netherlands. Consumers concentrate more on the situation in the Netherlands and pick up these signals later.
Both indicators showed a steady recovery in 2003-2004, followed by a stagnation in 2005 and recovery and acceleration in 2006. In October 2006 producer confidence reached a record value, while consumer confidence has not (yet) done so.
Developments in consumer and producer confidence
Economic sentiment in Europe
The European Commission publishes a monthly Economic Sentiment Indicator (ESI) for the European Union as a whole and for each separate member state. This ESI is based on five confidence indicators, of which producer and consumer confidence are important components, with weights of 40 and 20 percent respectively. The other three indicators measure the confidence in the services sector, construction and retail trade and are supplied for the Netherlands by other institutions than Statistics Netherlands.
The ESI for the Netherlands shows a development that is roughly similar to Statistics Netherlands’ confidence indicators, especially to producer confidence, which counts heavily in the ESI. The ESI for the Netherlands is also similar to that for the EU as a whole, which is understandable in view of the very open economy in the Netherlands.
Developments in the ESI for the Netherlands and the EU