Dublin, November 2019: The latest Consumer Market Monitor (CMM), published today by the Marketing Institute of Ireland and UCD Michael Smurfit Graduate Business School shows that Irish consumers are continuing to spend despite some weakening in confidence and the relentless move towards online retailing is continuing unabated. This trend will be underlined on Black Friday, when €250 million is forecast to be spent by Irish shoppers, split almost equally between online and bricks and mortar retailers, according to Marketing Professor Mary Lambkin of UCD Michael Smurfit Graduate Business School, author of the report.

“Whilst higher wages and improving household finances are welcome developments, Irish retailers must urgently lift their game in order to win greater shares of online spend” said Tom Trainor, Chief Executive of the Marketing Institute of Ireland.

General Summary

The Irish economy is continuing to grow strongly, with consumer spending providing the main stimulus together with property investment. Personal spending grew by 3.4% in 2018 to €105 billion and is up by 3% in the first half of this year which is a strong performance.

A recent weakening in consumer confidence, however, as well as a slowdown in car sales point to some loss of momentum so latest forecasts point to a slightly reduced growth rate of 2.6% for 2019 as a whole, with a further slowing to 2.4% in 2020.

This is a relatively good performance against a backdrop of uncertainty concerning the outcome of Brexit. It seems likely that this uncertainty will continue to weigh on consumers up to the end of this year, although the risk of a “no deal” Brexit seems to be receding giving reason for renewed optimism. The strong fundamentals in the Irish economy are also a counterbalance to any negative sentiment associated with Brexit.

The key fundamentals are the continuing growth in employment and incomes leading to significant improvements in household finances. There are now 2.3 million people at work, up 45,000 (2%) year-on-year, and up by 439,000 or 20% from the low point in mid-2012. Employment is expected to continue growing but at a moderating rate as the economy approaches full employment. Projected growth of 2.4% for 2019 and 1.7% in 2020 will add another 100,000 people to the workforce.

Earnings growth has also played a significant part in recent years as wages have begun to rise. Wages increased by 2.5% per annum from 2015 to 2017, by 3.5% in 2018 and are trending up by a further 3.6% this year as the labour market approaches capacity.

The combination of more people at work and higher wages has led to substantial increases in the amount of disposable income circulating in the economy. Aggregate disposable income increased by 5% a year from 2015 to 2017. This rose to 6% in 2018 for a total of €110 billion and was up again in H1 of this year by 6.6%, suggesting a final figure of about €117 billion.

Consumer spending has also been supported by improving household finances, mainly as a result of the increasing value of peoples’ homes. Household wealth stood at €772 billion in 2018, equivalent to €444,000 per household or €159,000 per person. This is up by 70% from the trough of €430 billion in Q2 2012. Perceptions of increasing wealth breed confidence and encourage consumers to release some of that wealth for spending.

Irish consumers are also beginning to supplement their own resources by taking on some debt, mainly to support the purchase and furnishing of homes. Following a decade of deleveraging with repayments consistently exceeding new borrowing, borrowing is beginning to increase again at a modest rate. New lending of €1.4 billion was advanced in 2018, an increase of 2%.

€1.1 billion of this was for the purchase of residential property with the balance for other personal consumption. Much of this is going on purchases of household goods, the strongest retail category currently. 2019 is showing a similar growth rate of 2%, equivalent to €2 billion in new loans.

It is important to note, however, that credit and borrowing are not major contributory factors in recent spending, unlike in the last boom. The ratio of debt/disposable income of Irish households has continued to fall, down from 215% at the peak in 2012 to 120% this year, a reduction of 40%. Also, savings deposits grew by €4.5 billion, or 4.7%, in the past year.

55,000 homes were sold in 2018 and sales are up again this year, but only by 2%, suggesting a total of 56,000 for 2019. In contrast, the number of mortgages approved was up 10% in the first half of the year indicating that demand is still strong. 65% of those mortgages are going to first time buyers showing that this is still the predominant need.

The market for cars is the most troubled sector right now; sales of new cars were down by -7% in the year to the end of September, for a total of 107,686. This suggests a total of about 112,000 new cars for the full year. This continues the negative trend of the previous two years, with sales down -10.5%, in 2017 and by a further -4.6% in 2018.

In contrast, there has been a substantial increase in the number of imported second-hand cars, totalling 99,456 in 2018. This trend is continuing in 2019 with sales up 6.2% to the end of September, to 80,085, suggesting about 105,000 for the full year.

In sum, car registrations were flat in 2017 and 2018 at about 220,000. This looks like dropping to 217,000 for 2019 with sales divided more or less equally between new and imported second-hand cars. This compares to a total of 240,000 in 2007 of which 180,745 were new cars.

A final point to note is the broad-based deterioration in the UK consumer economy on foot of Brexit. There has been a weakening in virtually every metric tracked in this monitor, from property to cars to retail and services over the past two years. Recent data show that this negative trend is accelerating in tandem with the decline in the value of Sterling.

Consumer Confidence

Consumer confidence in Ireland began to recover in 2013 and increased steadily through 2014 and 2015, at which point it was well ahead of the previous peak in 2007 and, also, significantly higher than our European neighbours. Confidence faltered slightly in 2016 following the Brexit vote but picked up again in 2017 in response to strong employment data.

Confidence dropped through 2018 reflecting ongoing worries about a “hard Brexit” and negative implications for the Irish economy. This downward trend continued in Q1 of 2019, going into negative territory for the first time since 2014. Confidence picked up modestly in Q2 but dipped significantly in Q3 as the Brexit debate intensified. However, confidence here is still significantly higher than in the UK and the wider EU.

Consumer confidence in the UK has been negative since Q2 2016, reaching a low of -10 in June and remaining at that level through the third quarter of this year. Consumer confidence in the EU has also been relatively weak for several years although slightly stronger than the UK.

Consumer Incomes and Spending

The disposable income of Irish households rose by 6% in 2018 to a total of €110 billion, significantly overtaking the last peak of €101 million in 2007. Increasing numbers in employment together with pay increases drove this growth.

Disposable income grew by 6.6% in the first half of this year and indications are that the year is remaining strong. On this trend, it looks likely that aggregate disposable income will reach €117 billion for the year as a whole.

There are now 2.3 million people at work, up 45,000 (2%) year-on-year, and up by 439,000 or 20% from the low in mid-2012. Employment is expected to continue growing but at a moderating rate as the economy approaches full employment. Forecast growth of 2.4% in 2019 and 1.7% in 2020 will add another 100,000 people to the workforce.

Earnings growth has also played a significant role in recent years; wages increased by about 2.5% per annum from 2015 to 2017, by 3.5% in 2018 and by a similar rate in 2019. Average weekly earnings stand at €771 this year, equivalent to annual pay of €40,000 and this is forecast to grow further next year as the labour market tightens.

Household wealth has also recovered well from the recession, standing at €772 billion in 2018, €444,000 per household or €159,000 per person. This is up by 70% from the trough of €430 billion in Q2 2012.

Consumer Borrowing

Borrowing by Irish households grew at a record level from 2000 onwards and peaked in March 2008 at €150 billion. It then declined steadily -- down 40% by December 2016 to €88 billion. This downward trend reversed in 2017, after almost a decade, the first sign of a return to normal conditions. Household debt increased by 2% per annum in the last two years and stood at €88 billion in June 2019.

Loans for house purchase, which account for 84% of household loans, peaked in Q1 2008 at €125 billion but reduced to a low of €73 Billion by Q4 2016, a cumulative decline of 40%. Mortgage lending has resumed growth since then, increasing by over €1 billion in 2018 (+1.4%), to a total of €74 billion by June 2019.

Lending for other consumption accounts for 18% of total borrowing. This category peaked in Q1 2008 at €30 billion but declined to €13 billion by December 2016, a reduction of 60%. It resumed growth in mid-2016, amounting to €14 billion by June 2019.

It is important to note, however, that credit and borrowing are not major contributory factors in recent spending unlike in the last boom. The ratio of debt/disposable income of Irish households has fallen from 215% at the peak in 2012 to 120% this year, a reduction of 40%. Furthermore, household deposits have continued to grow, increasing by €4.5 billion or 4.7% in the year to June 2019.

Residential Property

There were 55,000 homes sold to private households in 2018, an increase of 6% on the 52,000 sold in 2017. There were 30,630 mortgages drawn down which was 9% higher than the previous year. This suggests that 45% of homes were purchased with cash.

There were 34,125 residential properties sold to private households in the first three quarters of 2019, an increase of just 2% on last year, suggesting a year end figure of around 56,000.

In contrast, the number of mortgages approved was up 13% to 26,200, indicating that demand is still strong. 65% of those mortgages are going to first time buyers demonstrating that this is still the predominant need.

New homes are playing an increasing part in fulfilling that need -- 10,300 were sold in 2018 compared to 8,800 in 2017. 18,000 new homes were completed in 2018 and this is increasing to 20,000+ this year.

There were 1.24 million residential properties sold in the UK in 2016 but the market slowed to 1.2 million in 2017 and 2018. 2019 is weaker again, down -2% in the year to September, year-on-year.

Services

The services sector recovered more quickly from the recession than the retail sector, showing modest growth from 2011 onwards, and recovered more rapidly in recent years. The index overtook the 2007 peak in 2014, and made further gains in 2015, 2016, and 2017, up by 4+% per annum.

Services growth accelerated in 2018, up 8%, and this strength is continuing, with the first half of 2019 up by 9%. This is closely matched by Vat returns which were up 7% in 2018, to €14 billion, and by a further 6.4% in the first nine months of 2019.

However, the fortunes of individual service sectors have varied widely. Information/communication services did best, up 17.5% in 2018 and by 32% in the first half of 2019. Accommodation and food service were also strong, up 9% in 2018 and by 5% in 2019 to date. Professional and technical services fared worst, down 5% in 2018 and by the same again in 2019.

Car Sales

Following the recession, sales of new cars began to recover in 2014, and grew substantially in 2015 and 2016, reaching 143,000 units. This positive trend was short lived, however, reversing steadily since then.

New car sales fell by -10.5% in 2017, for a total of 127,045, and weakened further in 2018, down -4.6% for a total of 121,157. This trend has continued in 2019, with sales for the first three quarters down by -7% for a total of 107,686, suggesting a total of 112,000 new cars for 2019.

In contrast, there has been a substantial increase in the number of imported second-hand cars, totalling 99,456 in 2018. This trend is continuing in 2019 with sales up 6.2% in the first three quarters of the year, to 80,085, suggesting a total of around 105,000 for the year.

Taking new and imported cars together, sales were flat in 2017 and 2018 at about 220,000 and look to be down slightly to about 217,500 this year. Sales of other second-hand cars are also down this year by about 4% suggesting a general weakness in the motor trade.

Retail Spending

Retail sales (excluding the motor trade) were solid in 2018, up by 3.8% in volume and 2.7% in value, but lower than 2017 (+5.8% in volume and +3.5% in value). 2018 sales equated to €45 billion which was back to the levels last seen in 2007.

2019 got off to a strong start in Q1 with sales up by 5.8% in volume and 4.2% in value year-on-year. Momentum slowed a bit in Q2, with volume up by 3.6% and value up 2.2% year-on-year. The third quarter has been relatively strong, up 4.2% in volume and by 1.8% in value year-on-year. This amounts to an average of 4.5% growth in volume and 2.7% growth in value for the year to the end of September which is consistent with 2018.

Household equipment continued to be the fastest growing category this year, up by 13.2% in volume and 5.9% in value in Q3, year-on-year. Sub-categories within that -- electrical goods and furnishings -- did exceptionally well, up by 18.0% and 6.6% respectively.

Supermarkets and other food stores also performed very well, as did pharmaceuticals and cosmetics. Department stores and the motor trade were the weakest categories in Q3, down by -6.5% and -4.5% in volume respectively.

• Food sales up 5.2% in volume and up 4.5% in value;
• Non-specialised stores (supermarkets) up 5.6% in volume and 4.5% in value;
• Household equipment up 13.2% in volume and 5.9% in value;
• Pharmaceuticals and cosmetics up 5.6% in volume and 3.0% in value;
• Clothing, footwear & textiles up 1.4% in volume but down -0.7% in value;
• Fuel up 0.8% in volume but down by -0.5% in value;
• Bar sales up 0.6% in volume and down -0.7% in value.
• Books, newspapers and stationery down -3.1% in volume and -1.3% in value.
• Motor trades down -4.5% in volume and down -3.5% in value.
• Department stores down -6.5% in volume but down -9.5% in value;

View the full report here: Consumer Market Monitor Q3 2019