The latest Consumer Market Monitor, published by UCD Michael Smurfit Graduate Business School and the Marketing Institute of Ireland, shows that many measures of the consumer economy are still showing decline, driven by falling disposable incomes, as the austerity measures in the recent budgets take money out of the economy.
Speaking about the results, Professor Mary Lambkin, professor of marketing, UCD Smurfit School, commented: “Consumer spending is down and retail sales continue their sliding trend. The Government’s austerity measures may be working in terms of correcting the overall fiscal situation, but there is no evidence of any spontaneous growth in the consumer economy. If growth is the objective, then some stimulus will have to be provided.”
Disposable incomes substantially down
The figures show that disposable income is substantially down. Income tax take for the first quarter 2012 was up 26pc on the same period last year. While a significant portion of that was due to a technical reclassification of PRSI receipts by Revenue, it is undeniable that there has been a substantial reduction in the disposable income of Irish consumers.
In addition, utilities and other local charges increased in cost by 8.3pc and energy products rose in cost by 9.1pc in the first quarter year-on-year, leaving Irish consumers with less purchasing power.
Consumer spending still declining
VAT receipts were up 5.8pc for the first three months of 2012 compared to the same period last year, and March 2012 receipts were up 12.6pc. This has been heralded by some commentators as indicating a rise in consumer spending, and as vindication of the strategy of raising the VAT rate from 21pc to 23pc.
Professor Mary Lambkin commented: “The fact is that at least half of the items that attract VAT are essential items over which consumers have no control – such as fuel, transport, and essential services such as health insurance and professional fees. Much of this increase in VAT receipts is simply due to price rises in those services, and does not necessarily indicate a revival in retail activity.
“In fact, general consumer spending is maintaining a downward trend in 2012, and latest estimates suggest that it will fall by a further -1.5pc to -2.0pc this year. It is hoped however that this four-year decline may have run its course by next year as real disposable incomes begin to stabilize – a growth rate of a very modest 0.2pc is forecast for 2013.’
Consumer confidence rising, from a low base
Confidence has picked up slightly in the first quarter of 2012, climbing to -21 in March 2012. However, it is still six points lower than it was for the same month in 2011, (-15).
Consumer confidence in the UK remains weak also, with a further reduction in February and March 2012 on the already weak levels in the second half of 2011. In contrast, US consumer confidence surged in the first quarter to its highest in more than four years as the economy improved.
Retailing still languishing
Retail sales, excluding the motor trade, continued their downward trend in Q1 of 2012. Sales volume decreased by -2.2pc compared with Q1 in 2011, while value decreased by – 1.3pc from the same period in 2011. This represents a continuation of the trend in 2011 when retail sales fell by -2.6pc in volume and by -1.8pc in value.
The number of new cars sold was also down by -8.6pc on the first quarter of 2011, at 36,081 units. However, sales of second-hand cars increased to 9,578 in the first quarter of 2012, up 2.7pc on the first quarter last year.
Speaking at the launch of the results, Tom Trainor, chief executive of the Marketing Institute of Ireland, said: “This year is expected to remain very challenging for the retail sector. However, there appears to be a consensus among retailers that we are now approaching the bottom of the recessionary cycle so hopefully things may pick up in 2013. The recent and impending arrival of several international retailers here such as Hollister and Abercrombie and Fitch is also taken as evidence of confidence in the future of the retail sector.”
Paying down borrowing
Borrowings of all kinds have been going down steadily since the peak in 2008 and while the outstanding amounts are still very large, progress is being made in bringing them down to more manageable levels.
Loans for house purchase, which account for over 70pc of lending to households, have been declining for 24 consecutive months. They peaked at €123bn in September 2008 and reduced to €80bn in December 2011, a drop of -35pc. Loans for house purchase continued to decline in the first quarter of 2012, down -2.4pc year-on-year.
Lending for other purposes has also experienced a decline during Q1 2012, falling -8pc compared to the same period in 2011, and down -17pc from the peak in Q3, 2008. Credit card debt continued to decline in 2011, down -5pc for the year. Total credit card debt outstanding was €2.6bn in December 2011 compared to the peak of €3bn in December 2008, a decline of -12pc.
Signs of Revival in the property market
On the positive side, there are definite signs of revival in the property market. There is some evidence, particularly in Dublin and Leinster, that properties are selling in reasonable numbers and in a shorter period of time. The stock of properties for sale on Daft.ie in March 2012 was 54,000, which is the lowest level in four years.
Recent surveys also suggest that there is some pent-up demand in the market with half of first-time buyers suggesting that they would purchase a house this year, but that they are holding back due to a negative financing climate and expectations of further house price falls.
The continued falls in property prices have led to improvements in affordability, with the proportion of net income required to fund a mortgage by a first-time buyer couple falling to 12.4pc in 2011 compared to 26pc in 2006. The introduction of negative equity mortgages and the new deferred payment mortgage plan offered by Nama should also help to stimulate residential property sales which would be a major benefit to retailing and to the wider economy.
The Consumer Market Monitor is a service provided by The Marketing Institute of Ireland in collaboration with the UCD Smurfit Graduate Business School.