Is there light at the end of the tunnel for Irish consumers? Consumer Monitor Identifies Green Shoots for 2013

UCD Michael Smurfit Graduate Business School and the Marketing Institute have today launched their Consumer Market Monitor for Q4 2012, which includes a review of the performance of the consumer economy throughout 2012. 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.

1. 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.

1. 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.

1. 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 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.

Tom Trainor, Chief Executive, The Marketing Institute, said “Looking to the future there appears to be a slight cause for optimism. Gross disposable income was up slightly in 2012, up 2.3% in real terms for the first three quarters of 2012. Property sales were particularly buoyant in the final quarter of 2012, suggesting a momentum that may carry over into spring 2013. Loans for house purchase increased by 8% between November and December 2012 in a positive sign of revival in the property market. The fact that AIB and Permanent TSB have signalled their intention to make considerably more mortgage funding available is also an encouraging sign.  The fastest growing retail sector in 2012 was electrical goods, further demonstrating the knock-on effect of buoyancy in the property market.”

To download the full report, visit www.mii.ie/cmm