Never mind the looming Brexit, the confidence and the disposable income of Irish households is higher than boom time levels at €110bn, up 6pc on last year and overtaking the last peak of €101bn in 2007.

And to illustrate the confidence, Irish households are set to spend €6.5bn on overseas holidays, up 7.4pc on last year.

That’s according to the latest Consumer Market Monitor (CMM) published by the Marketing Institute of Ireland and UCD Michael Smurfit Graduate Business School.

Nifty and thrifty

The strong figures are based on a much sounder footing than at the last peak, reflecting a larger working population with good incomes rather than reckless borrowing, according to Marketing Professor Mary Lambkin of UCD Michael Smurfit Graduate Business School, author of the report.

“The continuing growth in employment and income are leading to improvements in household finances and consumer spending, which continues to grow despite weakened confidence due the uncertainty of the Brexit outcome”

Key factors include Household finances being boosted by the increasing value of peoples’ homes, with household net worth per capita now standing at €158,000, up 70pc from the low of 2012.

The disposable income of Irish households rose by 6pc in 2018 to a total of €110 billion, significantly overtaking the last peak of €101 million in 2007.

Unlike during the Celtic Tiger, credit and borrowing are not major contributory factors in recent spending, with the ratio of debt/disposable income of Irish households down from a peak of 215pc in 2012 to 124pc this year.

Savings deposits grew by €4bn in 2018, with deposits for a house purchase estimated to be a major factor, with approximately 30pc of renters or 10pc of all Irish households saving for a deposit.

The key fundamentals are the continuing growth in employment and incomes, leading to significant improvements in household finances, said Tom Trainor, CEO of the Marketing Institute.

“The continuing growth in employment and income are leading to improvements in household finances and consumer spending, which continues to grow despite weakened confidence due the uncertainty of the Brexit outcome.”

What full employment looks like

According to the report, there are now 2.3m people at work, up 50,500 (2.3pc) year-on-year, and up by 439,000 or 20pc from the low in mid-2012. Employment is expected to continue growing but at a moderating rate as the economy approaches full employment. Projected growth of 2.4pc for 2019 and 1.7pc in 2020 will add another 100,000 people to the workforce.

Earnings growth has played a more significant role in recent years as wages have begun to rise. Wages have been increasing by around 2.5pc per annum since 2015 and wage growth is expected to reach 3.6pc this year and 3.7pc next year, as the labour market approaches capacity.

The combination of more people working and higher wages has led to substantial increases in the amount of disposable income circulating in the Irish economy.

Safe as houses?

Aggregate disposable income has increased by about 5pc a year from 2015 to 2017. This accelerated to 10pc in 2018 reaching €110bn and was up again in Q1 of this year by 8.5pc year-on-year, suggesting a final figure of about €120bn.

Consumer spending has also been supported by improving household finances, mainly influenced by the increasing value of peoples’ homes.

Household net worth per capita now stands at €158,000, up 70pc from the low of 2012.

According to the report’s authors, perceptions of increasing wealth feed confidence and encourage consumers to release some of their wealth for spending.

One obvious reason for saving is to generate a deposit for a house purchase and survey evidence suggests that this is a definite objective for about 30pc of renters or 10pc of all Irish households.

Some 55,000 homes were sold in 2018 and sales have been flat so far this year suggesting a similar outcome for 2019. However, the number of mortgages approved is up 10pc in the first half of the year indicating that demand is still strong. 65pc of those mortgages are going to first time buyers demonstrating that this is still the predominant need.

The market for cars is the most troubled sector right now; sales for the first half of this year are down by -12.9pc for a total of 50,861. Annualised, this suggests sales of 105,000 for the year. This continues a negative trend for the past two years, with sales down -10.5pc, in 2017 to 127,045, and by a further -4.6pc in 2018 to 121,157.

In contrast, there has been a large increase in the number of imported second hand cars reaching 99,456 in 2018. This trend is continuing in 2019 with sales up 4.9pc in Q1 to 25,906, suggesting a final figure of about 104,000.

Car registrations were flat in 2017 and 2018 at about 220,000. This looks like dropping to 210,000 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.

Image: CaseyMartin/Shutterstock

Written by John Kennedy (john.kennedy3@boi.com)

Published: 16 August, 2019