Data from the Monitor shows consumer spending is continuing the downward trend that it has been on for the last four years and is closely mirroring trends in disposable income. The Monitor tracks key indicators of confidence and activity in the Irish consumer market and is an indicator of the health of the overall economy, in view of the fact that the consumer market accounts for 63% of GNP.
Mary Lambkin, Professor of Marketing, UCD Smurfit School and one of the authors of the Monitor, said, “It is likely that Irish consumer confidence will remain well below historical averages against the backdrop of a persistently high unemployment rate and international economic instability. Consumer spending is down by 2.1% for the first half of this year, and it is expected to be down 2.0% for the year as a whole. However, the disposable income of households was up 3.6% in Q1 of 2012, compared with the same quarter of 2011. Higher wages and profits of the self-employed along with lower interest payments contributed to this. Consumer confidence has also picked up slightly in the first half of 2012 although it is still lower than the same period last year (-15 in June 2011).”
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.
Tom Trainor, Chief Executive, The Marketing Institute said, “Consumer spending has experienced record-breaking falls since 2009 in line with dramatic drops in household income. There is no magic bullet for the Irish economy, however, with income and spending expected to stabilise this year and show modest growth thereafter, a path of sustainable growth lies ahead providing the international environment improves.”
Key findings from the Consumer Market Monitor for Q2 2012 include:
- Consumer Confidence has picked up slightly in the first half of 2012, rising to -20 in June 2012. However, this is still lower than the same period last year (-15 in June 2011). Irish consumer sentiment was on par with the UK for much of quarter two of 2012 (both at -20 for May and June).
- Consumer spending has declined in line with incomes, dropping by a record -10.9% in 2009, and continuing this downward trend in 2010 (-3.0%) and 2011 (-1.2%), to a level of €78.3 billion.
- Disposable income of households had been declining every quarter since 2008. However, disposable income was up 3.6% in Q1 of this year compared with the same quarter of 2011.
- Personal savings ratio continues to rise in 2012, estimated to be as high as 13% for the year as a whole.
- Credit card debt continues to decline in the first half of 2012, down -5.4% in June 2012, compared to June 2011.
- Personal consumption fell by a cumulative -6.9% in real terms over the four years since the peak in 2007.
- Retailing, which makes up about half of all consumer spending, is down by -1.7% in the second quarter, following a growth of 0.4% in the first quarter, and there does not seem to be any evidence of an uplift in this in Q3.
- Essential products including food and pharmaceuticals held up well in the second quarter.
- Other retail categories (fuel; clothing, footwear and textiles; books and stationery; bar sales) experienced substantial declines in Q2 year-on-year:
Concluded Mary Lambkin, “Despite an unprecedented rate of personal savings at present-13% of disposable income (compared to a normal rate of about 5%), over 80% of this saving is going into paying down debt rather than residing in bank accounts waiting to be spent. Given the importance of the consumer economy-over 60% of GNP-policymakers at home and abroad are wrestling with the challenge of how to stimulate consumer demand to enable the domestic economy to return to a more normal level of activity. Despite the positive signs of an increase in disposable income of households and an increase in consumer confidence, the only real prospect of stimulating growth in the consumer economy is to get more people back to work. This would create more disposable income and this, in turn, would lead to increased consumer spending. Various forecasts agree that the retrenchment in consumer spending may have run its course by next year as real disposable incomes begin to stabilise, with a modest level of growth returning from 2014 onwards.”
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.