- Consumer spending up by 3% in 2015, expected to be main driver of growth in 2016 and 2017
- Pay increases of about 2% as well as increased earnings among the self-employed
- Retail sales up 6.4% on 2015
The growth in employment over the past few years is currently mirroring the amount of disposable income circulating in the economy according to the latest Consumer Market Monitor (CMM) published today by The Marketing Institute of Ireland and UCD Michael Smurfit Graduate Business School. Data from the Quarter 1 2016 Monitor indicates that the consumer economy in Ireland is now showing strong evidence of a broad-based recovery.
Domestic demand, currently growing at close to 4%, is now the main driver of this remarkable economic growth. Consumer spending was up by 3% in 2015 and is expected to be the main driver of growth in 2016 and 2017.
Tom Trainor, Chief Executive, The Marketing Institute of Ireland, said: “The remarkable economic growth we are seeing is due to domestic demand, driven by increasing Irish household wealth as property values recover and consumers make progress in paying down debt, pushing consumer confidence to the highest level in a decade.”
Mary Lambkin, Professor of Marketing, UCD Smurfit School, and one of the authors of the Monitor, said: “The improvement in the labour market has been the most important factor driving the recovery, with the average annual employment growth of over 2% since early 2012.There are now 1.98 million people at work, up by 158,000 since the low point in 2012, contributing to the long anticipated increase in the amount of disposable income circulating in the economy - the ‘virtuous circle’ that we have been waiting for. In fact, there has been a remarkable increase in disposable income - gross disposable income increased by an estimated 9% in 2015, a kind of increase not seen since the heady days of the Celtic Tiger.”
Pay increases of about 2%, which were common in 2015, have also contributed to growth, as have increased earnings among the self-employed.
Increased consumer confidence is now at the highest level in a decade reflecting ‘pent up demand’ following a long period of recession, and this can be seen in growing sales of big ticket items such as homes, home furnishings, new cars and clothing.
Following several lean years, sales of new cars were up more than 30% last year to 121,110. 2016 is continuing this trend, with a further increase of 30% in the first quarter, suggesting a final figure of about 175,000 cars. An average of 160,000 cars were sold each year in the early 2000s. Sales of services such as accommodation, food and drink, and entertainment have also been strengthening, up by 5.8% during 2015.
Retail sales are also improving significantly; sales volume rose by 6.1% in 2015. All retail categories got a boost in recent quarters, and the evidence suggests that 2016 is delivering strong growth for most retailers, up 6.5% in the first quarter year-on-year.
Property sales are also buoyant, with 48,374 residential property market transactions recorded in 2015, up 21% on 2014 which, in turn, was up 38% on 2013. 22,767 new mortgages were issued in 2015, up 19% year-on-year.
Consumer confidence in Ireland fell dramatically in 2008 as the financial crisis unfolded, and remained low through 2009, the bailout in 2010, and the Eurozone crisis of 2011-2012. Confidence recovered slightly in 2013 due to strong employment growth and our exit from the bailout programme. It rose further through 2014 due to a steady flow of good news on employment, tax receipts, and growth in services and manufacturing. This upward trend continued in 2015, reaching a record high of +16.7 in June, and remained strong through the rest of the year.
Although there has been a slight weakening in confidence during the first quarter of 2016, perhaps reflecting uncertainly about the formation of a new government and about Brexit, at 14.9 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 a remarkable rate of 9.4% in 2015, due to a combination of increased employment levels and higher pay rates. This increase approached the growth rates of the Celtic Tiger era; the previous record was 9.8% growth in 2005.
Household spending is now growing consistently at a rate of 3-4%, and all analysts agree that this strong growth curve is well established and likely to continue for this year and next.
Following four years of decline, retail sales stabilised in 2012, and increased by a very slight 0.8% in volume in 2013. A significant turnaround occurred in 2014, with retail sales volume up by 3.7% and value up by 1.6%. This recovery accelerated further in 2015, with sales volume up by an impressive 6.1% and value up by 2.7% for the year. Noteworthy is the fact that this growth in sales exceeded the growth in footfall (up 1.6%) providing evidence of a real uplift in spending. Strong Vat returns also provide evidence of growth; up by 7.9% in 2014, and by 7.1% in 2015.
The evidence suggests that 2016 is continuing to deliver strong sales growth for most retailers with spending in the first quarter up 6.5% in volume year-on-year.
All product categories except fuel experienced growth in Q1 2016, up 6.5% in volume and 4% in value. Most remarkable is the significant growth displayed by sectors that have been weak throughout the recession, such as bars and newsagents. In summary:
- Food sales up 5.8% in volume and up 5.2% in value;
- Non-specialised stores (supermarkets) up 6.0% in volume and 5.4% in value;
- Fuel down -0.4% in volume and up 2.6% in value;
- Clothing, footwear & textiles up 12.2% in volume and 8.7% in value;
- Household equipment up 5.0% in volume and 2.9% in value;
- Department stores up 10.2% in volume and 7.6% in value;
- Pharmaceuticals and cosmetics up 6.1% in volume and 4.2% in value;
- Bar sales up 7.6% in volume and up 8.2% in value.
- Books, newspapers, stationery up 6.5% in volume and 7.8% in value;
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