Latest Q2 Report of the Consumer Market Monitor produced by UCD Smurfit School and the Marketing Institute of Ireland.

• Q2 spending on personal consumption is up by 5 percent on Q1 2016
• Household debt (€32,269 per capita) is now at its lowest level since 2006 and is reducing at a rate of about 2.4 percent per annum
• An increase of 7.8 percent was seen in the sale of services on the previous year.

The recovery and expansion of the Irish consumer economy is now well established and not showing any sign of being negatively affected by Brexit. This is one of the key findings of the latest Consumer Market Monitor (CMM), published today by The Marketing Institute of Ireland and UCD Michael Smurfit Graduate Business School. Data from the second quarter of the CMM indicates that the consumer economy in Ireland is now showing strong evidence of a broad-based, sustainable recovery.

The only area that is not thriving is property sales which are down by 7 percent this year, in direct contrast to every other area of consumer spending, with no evidence of a pick-up in the short term.

Mary Lambkin, Professor of Marketing, UCD Smurfit School and one of the authors of the Monitor, said: “The imbalance of consumer spending and property sales needs to be addressed so as to bring the economy into better balance. Property sales ae struggling and there is sign of forthcoming growth in this area. As of May 2016, we have only seen 16,743 sales which is in stark contrast to 48,700 residential sales transactions in 2015.”

Tom Trainor, Chief Executive, The Marketing Institute of Ireland, said: “In contrast to the UK’s consumer confidence downward plunge by 8 points to -9 following the Brexit vote, the largest drop in a single period in 21 years, consumer confidence remains strong in Ireland and bodes well for continuing economic activity. We appear to have a sustainable and broad-based recovery taking place.”

SUMMARY

The 26 percent growth in Irish GDP that sparked recent controversy highlights the point that a far more realistic measure of our economic wellbeing is the growth in personal consumption which makes up 55 percent of national economic activity.

The starting point is with the amount of disposable income circulating in the economy, because spending very closely matches income. In fact, there has been a remarkable increase in disposable income in recent times with very positive effects - gross disposable income increased by 5 percent in 2015, and by a similar amount in the first quarter of 2016.

The improvement in the labour market has been the most important factor driving this income growth, with employment increasing by more than 2 percent each year since early 2012. There is now 1.98 million people at work, up 46,900 year-on-year, and up by 152,000 since the low point in 2012. Pay increases have also contributed 2.7 percent on average in 2015, as have increased earnings among the self-employed.

Confidence is still strong here and is driving a steady increase in consumer spending that is producing better sales performance in virtually all retail and service sectors. Some of this reflects “pent up demand” following a long period of recession, and this can be seen most clearly in continued growth of “big ticket” items – home furnishings, new cars, clothing and other consumer durables – all of which are up very strongly in recent quarters.

Sales of new cars are an indicator of economic recovery, and Ireland is no exception. Following several lean years, sales of new cars were up over 30 percent last year to 121,110. 2016 is continuing this trend, although at a slightly slower rate, with 97,490 cars sold in the first half of the year, up 24 percent on the same period in 2015. This suggests a final figure of about 150,000 cars which will bring us close to the average of around 160,000 cars sold each year in the early 2000s prior to the economic downturn.

Sales of services such as accommodation, food and drink, and entertainment have also been strengthening, up by 7.8 percent for the year to May 2016, following 6 percent growth in 2015. Retail sales are also improving significantly; sales volume rose by 6 percent in 2015 and by a further 5 percent in the first half of this year. All retail categories got a boost in recent quarters, and the evidence suggests that 2016 is delivering strong growth for most retailers.

Sale of property is one area that is not showing strong growth. There were 48,700 residential sales transactions in 2015, and more than 40,000 in 2014. In contrast, there was just 16,743 sales to the end of May 2016, down 7 percent on the same period in 2015. Mortgage approvals were also down 11 percent to the end of May, further evidence of a weak market. Growth for the year is expected to be muted with the data indicating it will be less than 5 percent.

CONSUMER CONFIDENCE

Consumer confidence showed signs of recovery in 2013 and this rose throughout 2014 and 2015. Confidence level reached a record high in June 2015 and remained strong through the rest of the year. At this point, consumer confidence in Ireland was well ahead of the last peak in 2007, and also well ahead of other European countries.

There has been a slight weakening in confidence during the first half of 2016 which may be reflective of uncertainly about the formation of a new government and Brexit. However, consumer confidence remains strong here and bodes well for continuing economic activity.

In contrast, consumer confidence in the UK has dipped in recent months, a clear sign that the vote to leave the European Union is harming the nation’s outlook. The core Index fell 8 points to -9 in the weeks following the Brexit vote, the largest drop in a single period in 21 years.

CONSUMER INCOMES AND SPENDING

Household disposable income rose by over 5 percent in 2015 from €90 billion to €95 billion. This rise is due to a combination of expanding employment and increasing pay rates. There is now 1.98 million people at work, up 152,000 since 2012. Irish households also saw a pay increase of 2 percent in 2015.

Disposable income was up by a further 6 percent on Q1 2016, largely driven by pay increases, with the amount of money now circulating in the economy very close to the level of the 2007 peak.

Personal consumption in total was up by 4.5 percent in 2015, and is up by 5 percent in Q1 2016, with no sign so far of a Brexit effect. Growth of 4 percent is forecast for the year as a whole.

CONSUMER BORROWING

Household debt is now at its lowest level since 2006, at €32,269 per capita, and is reducing at a rate of about 2.4 percent per annum. The ratio of household debt to disposable income has fallen by 60 percent since its peak of 215 percent in mid-2011. This rate of debt reduction has surpassed most other countries, but still remains relatively high at 167 percent of disposable income.

RETAIL SPENDING

Following five years of decline, a significant turnaround occurred in 2014, which accelerated further in 2015, with sales volume up by an impressive 6.1 percent.

2016 is continuing to deliver strong sales growth for most retailers with spending in the first half of the year up 5.5 percent in volume, year-on-year.

RECENT TRENDS

The latest indicators for 2016 show continued momentum in consumer spending. Sales of new cars were up over 30 percent in 2015 to 121,110. 2016 is continuing this trend, although at a slightly slower rate, with 97,490 cars sold in the first half, up 24 percent. This suggests a final figure of about 150,000 cars, close to the average of 160,000 sold each year in the early 2000s.

The services sector grew by 5.8 percent in 2015, and is continuing to grow strongly in 2016, up by 7.8 percent for the first five months of the year, with telecommunications, food and beverages, and professional services very buoyant.

Retail sales, excluding the motor trade, were up 4.5 percent in volume and 1.4 percent in value in the second quarter of 2016. All product categories experienced growth; most remarkable is the growth in sectors that have been weak throughout the recession, such as bars and newsagents. In summary:

• Food sales up 3.2 percent in volume and up 2.5 percent in value;
  Non-specialised stores (supermarkets) up 3.1 percent in volume and 2.5 percent in value;
• Fuel up 1.7 percent in volume but down 6.6 percent in value;
  Clothing, footwear and textiles up 7.6 percent in volume and 5.9 percent in value;
• Household equipment up 8.6 percent in volume and 4.5 percent in value;
• Department stores up 3.2 percent in volume and 1.5 percent in value;
• Pharmaceuticals and cosmetics up 4.8 percent in volume and 4.2 percent in value;
• Bar sales up 6 percent in volume and up 7 percent in value;
• Books, newspapers, stationery up 0.6 percent in volume and 1.4 percent in value

Overall, we can conclude that retail sales are back on a strong growth path, and holding that strength in each successive quarter.

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