Data from the Monitor shows that consumer confidence is at an exceptionally high level, on the back of positive news on employment, strong retail sales figures and an increase in property transactions.
Consumer confidence picked up considerably throughout 2013, with confidence up five points in the first half of 2013, compared to the same period in 2012. The second half of 2013 continued in an upward direction, reaching a seven year high of +5 in December. This positive momentum is continuing into 2014, with confidence rising to +10 in January 2014.
Mary Lambkin, Professor of Marketing, UCD Smurfit School, and one of the authors of the Monitor, said, “Consumer spending accounts for over 60% of GNP in Ireland and is a critical factor in driving any recovery of the economy. Consumer spending is affected by the combined influences of how much money people have available to spend coupled with their confidence in spending it. Disposable incomes for households are still under pressure but a number of factors have led to an increase in consumer confidence. Positive news in the employment and property markets, strong retail sales in December, better economic stability following on our exit from the bailout and an easing of fears about austerity measures are all starting to filter through to the economy.”
The Consumer Market Monitor relies on a model of consumer behaviour which sees economic variables such as income levels, taxes, interest rates and exchange rates influencing consumer confidence which, in turn, influences consumer behaviour including spending, saving and borrowing. The Monitor uses quarterly data collected from sources including the Central Statistics Office (CSO), the Central Bank, the European Commission, and various other secondary sources.
Key findings from CMM Q4 2013 include:
Consumer Confidence reached a seven year high in December, despite concerns about the impact of new household taxes and pay cuts on household finances. Improving confidence was also attributed to positive employment data. This positive momentum is continuing into 2014, with confidence rising to +10 in January.
Consumer incomes and Spending: Disposable incomes were down -1.8% in the first three quarters of the year compared to the same period in 2012. It seems likely that the public sector pay cuts and property taxes which took effect during 2013 put downward pressure on disposable income. However, improving employment figures suggest the possibility of a modest increase in gross disposable income in 2014 and 2015.
Retail Spending Stabilises: Retail sales increased slightly in 2013, after four years of decline, with volume increasing 0.7%, while value was steady (down by -0.1%). Retail sales were stronger in Q4 increasing 1.1% in volume, year-on-year, although decreasing -0.6% in value. December was particularly strong, with sales volume up 3.0% and value up 0.9%. In fact, the December peak is getting higher each year, although it is still 10% lower than the 2007 peak.
Number of Property Transactions Increases: There were over 10,900 home purchase transactions in the first half of 2013, an increase of 13% on 2012. There were 7,800 transactions in the third quarter alone, compared to 6,300 in Q3 2012, an increase of 14%. Only 8,305 new mortgages were issued during that period which suggests that less than half of these purchases were for cash. The outlook seems positive for this year with several banks having announced increases in their mortgage funding, coupled with evidence of strong demand in the market, particularly in the Dublin area.
Sales of new cars increase: 22,927 new cars were sold in January 2014, up 33% on 2013 (17,242) and 8% on 2012 (21,309), suggesting some pent up demand that augurs well for the year as a whole. Second hand cars are also doing well, with sales for 2013 up 29.4% for a total of 49,762 cars. For 2013 as a whole, 71,348 cars were sold, a reduction of -6.4% for the year. The new 131/132 registration scheme served to distribute sales more evenly throughout the year, but did not increase the overall level of sales.
Household spending picked up very slightly in 2013, up 0.6% from €78.2bn to €78.3bn, year-on-year. Positive signs in the retail sector suggest that this trend may be gaining momentum, with a modest increase of 1% forecast for 2014 and 1.3% in 2015.
Tom Trainor, Chief Executive, The Marketing Institute of Ireland, said “Improvement in the jobs and property markets, combined with perceptions that the economy is improving since our exit from the bailout, are contributing to consumers’ willingness to spend more. While there is a sense that the overall economy is improving, disposable incomes and personal finances are still a major concern for many. The Central Bank is forecasting a modest increase in consumer spending of 1% for 2014 and 1.3% for 2015, but improving indicators may come closer to matching the wider forecast of GNP, which is expected to grow 2.2% this year and 2.5% in 2015.”
About the author
The Consumer Market Monitor is a service provided by The Marketing Institute of Ireland in collaboration with the UCD Smurfit Graduate Business School.