Is There Light at the End of the Tunnel for Irish Consumers? Consumer Monitor Identifies Green Shoots for 2013
Data from the Monitor shows that 2012 ended with the main metrics in the negative. Overall consumer confidence, aggregate consumer spending, car sales, retail spending and other consumer services were all down. However, data also identifies a number of green shoot developments that may provide a platform for future growth.
Mary Lambkin, Professor of Marketing, UCD Smurfit School, and one of the authors of the Monitor, said “The only thing that seemed to go up was costs—utilities, health insurance, and property tax, to name but a few. And, of course, mortgage arrears have kept increasing to their current alarming level. Consumer confidence is likely to remain weak while unemployment remains high and rising costs are putting ever increasing pressure on already cash-strapped consumers. Consumers are exercising caution by paying down debt rather than spending. We currently have an exceptionally high savings ratio, 80% of which is used for debt repayment, meaning little disposable income is available for any kind of non-critical spending. Despite this, there were a number of more positive developments that show some light at the end of the tunnel for Irish consumers.” These include:
1. Disposable incomes rose by 4% in current terms (2.3% in real terms) in the first three quarters of the year, presumably as a result of an uplift in the jobs market. There seems a good chance that this trend will continue in 2013 with the current momentum in the private sector.
2. Net worth of Irish households rose in 2012 for the first time since Q1 2008. At the end of September 2012, the net worth of Irish households stood at nearly €457 billion, (or €99,646 per capita). Improving asset values bolster consumer confidence and may re-ignite postponed spending.
3. Consumer debt has fallen rapidly. There was a drop of 33% between May 2008(€127 billion) and December 2012 (€79 billion) in loans for house purchases. Other consumer lending peaked in Q1 2008 at €24 billion but had declined to €12 billion by December 2012, a drop of 50% from the peak and of -5.5% for the year.
4. Residential property sales rose by 16% to 21,000 in 2012, compared to 17,621 in 2011. Property sales were particularly buoyant in the final quarter of 2012, suggesting a momentum that may carry over into spring 2013.
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 2012 include:
Consumer Income and Expenditure: Steady Decline in Disposable Income
• Following growth of 60% in household disposable income from 2002 to 2008, there has been a steady decline in recent years. Disposable incomes declined -7.6% in 2009, and by a further -4.2% in 2010, but stabilised in 2011, with a decline of just -0.4%.
Consumer Borrowing: 26% down since 2008
• Total household credit peaked in March 2008 at €150 billion, but has declined steadily since then, down to €111 billion by December 2012, a reduction of -26% from the peak.
• Loans for house purchase account for over 70% of lending to households. Total outstanding loans for house purchase peaked in May 2008 at €127 billion but reduced to €85 billion by December 2012, a drop of -33%.
• Loans for house purchase continued to decline in 2012, down about 2% for the year.
Retail Spending: Stabilising after four years of decline
• Retail sales have continued to be weak in 2012, down by -2.1% in Q1 and -1.1% in Q2 year-on-year but increasing slightly in the third (0.6%) and fourth quarters (1.5%).
• The net effect was that sales volume remained more or less flat for the year, with value increasing by a very slight 0.4%.
• This suggests that retail sales may be stabilising after four years of decline, but this stability is on a very low base, which still represents very challenging conditions for many retailers.
•Essential products including food and pharmaceuticals held up well in the fourth
quarter and household equipment showed significant growth, up 8.5% in volume and up 3.1% in value.
The Property Sector: Normalisation in the market
• The proportion of properties selling within four months has risen in Dublin to 63% since the start of the year suggesting some normalisation in the market.
• The stock of properties available for sale in Dublin has fallen 35% from its peak of late 2008 to a current low of 3,500.
Motor Trade: Decrease of 18.5% in 2013 versus 2012.
• Car sales struggled in 2012. By December 2012 there were 76,256 new cars sold, a decrease of 12% from the 86,932 new cars sold in 2011.
• This trend is continuing into 2013 with January sales of 17,299 already down 18.5% on last year.
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.