Dublin, February 15, 2016: New findings from the quarterly Consumer Market Monitor (CMM), published today by The Marketing Institute of Ireland and UCD Michael Smurfit Graduate Business School, show that consumer spending is making a significant contribution to Ireland’s economic growth.

This report, covering quarter four of 2015 and also providing a review of the full year, highlights the recovery in consumer spending and its reflection of the “pent up demand” from rapidly growing sales of “big ticket” items – new cars, homes and home furnishings, electrical goods and other consumer durables.

Summary

Consumer spending looks set to keep an upward trajectory this year and for the foreseeable future - driven by figures of 1.98 million people currently at work, up by 158,000 since the low point in 2012, and the evidence suggests that pay increases of about 2% were common in 2015, and likely to happen again in 2016.

These factors led to a remarkable increase in the amount of disposable income that is circulating in the economy. Gross disposable income increased by an estimated 7.5% in 2015, an increase level not seen since the boom times.

Increased consumer confidence was also seen in the sales of new cars which were up 30% on 2015. Lower fuel prices have also helped, as will the reductions in tax and social charges coming through in January 2016.

Retail sales are also improving significantly; sales volume rose by 3.7% in 2014 and this upward trend accelerated in 2015, with sales volume up by 6.2%. All retail categories got a boost in recent quarters, and the evidence suggests that 2016 is delivering sales growth for most retailers.

Sales of services have also been strengthening, up 4.1% for the year 2014, and up by 5.8% for 2015.

Sales of household goods have been particularly notable, most notably furniture and lighting up by 19%, electrical goods up 10%, and hardware, paints and glass up 5%.

However, the appetite for home improvements has not been matched by property sales. There were approximately 42,400 residential properties sold in 2015, up by just 6% on 2014, suggesting that tighter lending rules are holding back house purchases. The number of new mortgages issued in 2015 was also muted, up 19% year-on-year for a total of 22,767, indicating that cash buyers still account for more than 50% of transactions.

The indicators are that the consumer economy is now growing strongly, with all types of spending increasing, apart from fuel. In sum, consumer spending is now back to a level of about €90 billion, close to the previous peak in 2007. Before we start to fear a new bubble building, however, we need to remember that a normal healthy market would have grown in the interim years, so we should probably be at a level of between €100 and €110 billion by now without the recession. This suggests that we still have some way to go to get back on track in the consumer economy.

Consumer confidence in Ireland is now well ahead of the last peak in 2007, and also well ahead of our European neighbours.

Consumer Incomes and Spending

Household disposable income rose by 3% in 2013, the first increase since 2008, and continued to grow through to 2014 and 2015, but at a faster rate - this increase exceeding the growth rates of the Celtic Tiger era.

Consumer Borrowing

Borrowing by Irish consumers grew at a record level from 2000 onwards and peaked in March 2008 at €150 billion, but has declined steadily since then, down 39% from 2008 to €92 billion in Q3 2015. Household debt is reducing at a rate of about 2.8% per annum. The figures show that lending to Irish households fell again in Q4, while deposits rose sharply.

The rate at which Irish households have reduced their debt is quite remarkable, surpassing most other countries – with household debt as a percentage of income having decreased by 33%.

Recent Trends

Sales of new cars experienced a major turnaround in 2014, with 92,361 units sold, a 30% increase on the previous year. This buoyancy continuing through 2015, with 121,110 new private cars licensed, a rise of 31% for the year. Sales of second hand cars are also thriving, with almost 950,000 transactions in 2015, which was up 8% on 2014.
Retail sales excluding the motor trade are also improving; sales volume rose by 3.7% in 2014 while value increased by 1.5% indicating a significant upturn in activity. Retail sales growth accelerated further in 2015, with volume up by 6.7% in Q4, year-on-year, and value up 3.3%.

All product categories except fuel experienced growth in Q4 2015. Most remarkable is the significant growth displayed by sectors that have been particularly weak throughout the recession, such as bars and newsagents. In summary:

• Food sales up 4.5% in volume and up 3.3% in value;
• Non-specialised stores (supermarkets) up 4.8% in volume and 3.6% in value;
• Fuel down -2.0% in volume and down -10.8% in value;
• Clothing, footwear & textiles up 7.4% in volume and 4.1% in value;
• Household equipment up 10.1% in volume and 6.1% in value;
• Department stores up 8.8% in volume and 5.6% in value;
• Pharmaceuticals and cosmetics up 7.4% in volume and 3.7% in value;
• Bar sales up 5.8% in volume and up 6.4% in value;
• Books, newspapers, stationery up 1.3% in volume and 2.8% in value;

Overall, retail sales are back on a strong growth path, getting stronger in each successive quarter of 2015. This positive momentum bodes well for continuing growth through the rest of 2016 and into future years, reflecting the broad-based strengthening of the economic fundamentals in the Irish consumer market.

Mary Lambkin, Professor of Marketing, UCD Smurfit School, and one of the authors of the Monitor, said: “Consumer spending accounts for over 50% of GNP in Ireland and is a critical factor in driving recovery in the economy. The level of consumer spending is fundamentally dependent on the amount of disposable income circulating, and this has increased significantly in the last year as a result of more people at work. In fact, the increase in disposable income last year was back to the sort of level that we have not seen since the Celtic Tiger years. This increase in incomes, together with greater availability of credit, is leading to accelerated spending on many categories of goods and services"

Tom Trainor, Chief Executive, The Marketing Institute, said: “Despite massive national debt and a shaky banking system, it is great to see consumer confidence reaching its highest level in a decade, as this is driving spending which is in turn enabling many businesses to grow and expand employment.”

To view the full report click here.