Christmas 2024 finds Consumers Cautious but more Positive

Posted on: 23 Dec 2024

A Santa pause? Irish consumer sentiment holds steady in December as confidence improves in US and UK

• Increased concerns about economic outlook offset by easing worries around household finances
• Buying plans improve for fourth month in a row suggesting improving trend in consumer spending 

 
Special questions ask consumers to compare Irish economy now to its past, to other economies at present and to how it might look in ten years’ time

• Just under half of Irish consumers think the Irish economy is better now than in their parents’ time. One in three think it is worse
• Opinion evenly divided as to whether Irish economy is now faring better (30%), worse (31%) or similar to other economies (36%)
• 30% of consumers see a stronger economy in ten years’ time, 34% see a weaker economy, and 29% see it being similar to now (which is fairly strong)
• In direct but not surprising contrast to the miserable nature of Scrooge and the contentment of the Cratchit family in ‘A Christmas Carol’, the sentiment survey finds those on higher incomes are more positive about the Irish economy while those who are struggling are comparatively negative  

Speaking on the release of the December sentiment survey data and analysis, David Malone, CEO of the Irish League of Credit Unions noted; ‘'It is encouraging that the December sentiment survey suggests consumer spending plans are continuing to improve as household finances are expected to recover in 2025. Both in relation to financial opportunities and challenges they may face now and in the year ahead, Irish consumers can always count on the support of their local credit union.'   
 

Summary

Irish consumers ended 2024 worried about the economic outlook and still dealing with cost-of-living pressures but a little less negative about their own household finances for the coming year and planning to spend somewhat more as a result.

The mixed nature of the December 2024 consumer confidence reading reflects the conflicting and often confusing forces now influencing the economic and financial circumstances of Irish consumers.

A range of recent commentaries have warned of large and increasing risks to the downside for the Irish economy because of the threat of marked changes in US policymaking and a more fractured global economy. However, a different picture is painted by the latest batch of indicators which point to healthy gains in activity and employment in the Irish economy of late.

Financial conditions of Irish consumers also show contrasting elements. While the trend in inflation is still moderating and interest rates are falling, consumer prices continue to increase and the cumulative pressure of a sustained rise in living costs in recent years is weighing on the household finances of consumers on modest incomes or those with major commitments.

In these circumstances, it is not surprising that the December sentiment survey finds increased caution about the outlook for economic activity and jobs.

However, with household incomes now increasing faster than inflation, the December reading also finds consumers less fearful about the prospects for their own household finances in the year ahead and this has also prompted an increase in spending plans. 

In our special questions this month, we borrow from (or butcher) Dickens ‘A Christmas Carol’ and ask consumers how the Irish economy now compares to the ghost of its economic past, to other economies at present and to how it may fare in the future.

Although there is a sense that things are better now than before, the cost-of-living crisis and a lot of gloomy economic commentary likely mean that Irish consumers are notably less confident about the Irish economy than most indicators might imply.

Not surprisingly, but in complete contrast to Scrooge and the Cratchit family in ‘A Christmas Carol’, those on higher incomes and facing less difficulty making ends meet are more positive about economic and financial conditions than those who are struggling.      
 

Section I; Irish consumers more worried about the economy, less fearful about their household finances

The Credit Union Consumer Sentiment Survey (in partnership with Core Research) shows an index reading of 73.9 for December, marginally down on the 74.1 reading that was posted both in November and October. 

The December 2024 number is still well below the long-term survey average of 84.3 and, as such, signals that Irish consumer sentiment is quite subdued at present.

However, the latest reading also represents a significant improvement on the December 2023 reading of 62.4 and is also slightly higher than the average figure of 71.6 recorded in 2024. So, it would seem that Irish consumers' concerns have eased somewhat through the past year.

Sentiment improves in US and UK but consumers there remain concerned

In contrast to the largely unchanged Irish sentiment reading, the preliminary reading of US consumer sentiment and UK consumer confidence both reported increases in December.  However, in neither instance did this increase suggest any marked improvement in the mood of those consumers.  

The increase in US consumer sentiment was attributed to an improvement in buying plans. That is usually seen as an indicator of improving confidence but, in this instance, the survey compilers indicated that a step-up in purchasing plans reflected efforts to beat expected price increases in the year ahead.

Consistent with a more cautionary stance on the part of American consumers, the expectations element of the US sentiment index fell in December. As has been the case in recent months, expectations for the economy weakened among Democrat voters and strengthened among Republicans.

In the UK, consumer confidence rose marginally in December, driven by an improvement in household finance elements of the survey that likely owe something to a Bank of England interest rate cut in November as well as a pick-up in wage growth of late at a time when inflation has moderated.

GFK, the compilers of the UK consumer confidence report pointed out that the improvement in household finances had not translated into a pick-up in British consumers spending plans and noted that ‘‘it’s the continuing uncharitable view on the UK’s general economic situation that’s suppressing consumer confidence.”  
 

Steady Irish sentiment reading conceals important variations in Irish consumers thinking

The fractional fall in sentiment between November and December essentially signals no marked change in the mood of Irish consumers through the past three months.

As has been the case in recent months the effectively unchanged overall reading reflected small and offsetting changes in the main elements of the survey.  So, Irish consumers appear to be sensing some important but largely offsetting changes in the factors influencing their economic and financial circumstances.

Both ‘Macro’ elements of the Irish consumer sentiment survey posted modestly weaker readings in December than November. Although a range of economic data released during the survey period, from growth figures to exchequer returns, suggested continuing solid gains in activity and employment, an even broader range of economic commentary emphasised large and looming downside risks to the Irish economy and the public finances.

The key risk focus of late has been the potential for a damaging change in US policymaking that, through the possible introduction of tax changes and tariffs, could significantly threaten the health of the multinational sector in Ireland as well as weakening prospects across the broader Irish economy. 

In addition, the survey period saw concerns expressed about a ‘de-anchoring’ of domestic Budget policy while the Economic and Social Research Institute suggested that Irish house prices might now be overvalued by 8-10%.

Although some retracement of property values might ease current affordability issues, the mechanism through which this might occur is likely to entail broader damage to the economy. Indeed, warnings around property values and the public finances likely weigh on consumer sentiment by recalling the relatively recent and extremely painful experience of the financial crisis. 

Against this backdrop, it might be argued that the performance of the ‘macro’ elements in the December survey is notable in that that the weakening in Irish consumers expectations for economic activity and jobs over the next twelve months was relatively modest, with both elements remaining above their 2024 averages.

Perhaps understandably, given several high-profile layoff announcements in the Tech sector through the past year, Irish consumers downgraded their outlook for jobs to a greater degree than for economic growth.

While both ‘macro’ elements of the sentiment survey moved in the same direction this month, the readings on consumers personal finances were mixed. The sharpest change in consumer thinking between November and December came in a clear downgrade of consumer thinking on how their personal financial circumstances had changed through the past year.

The weaker assessment of household finances through the past twelve months follows a notable improvement in this element of the survey in the previous two months that was likely linked to Budget-day announcements of one-off payments and the delivery of the first tranche of these last month.

The December reading may reflect a shift in focus away from temporary fiscal supports as well as a renewed concentration on living costs in the run-up to Christmas.

In addition, household living costs have continued to increase even though inflation has eased. The survey period saw a pick-up in grocery price inflation (from 3.3%y/y to 3.6% according to Kantar) while EU data indicate that petrol, diesel, and home heating oil prices all increased from the previous month.

On a broader front, Central Statistics Office data show that, after adjusting for inflation, economy-wide household income was 2.4% higher in the third quarter of 2024 than a year earlier. However, when account is taken of the increased number of households in Ireland through this period, it seems that the average Irish household saw a small drop in their ‘real’ income over the past year. 

If continuing consumer concerns around living costs can be readily explained, it is also necessary to examine why consumers were more optimistic about their household finances for the coming year and why spending plans improved.

The December survey period saw the ECB cut interest rates and, arguably of greater importance, signal the prospect of a material further drop in borrowing costs in 2025. In addition, several reports pointed to the prospect of solid wage growth in the year ahead.

With inflation widely expected to remain modest and supportive changes to income taxes and welfare payments set to kick in from January, there are reasonable grounds for the improvement in expectations regarding household finances in 2025.

Our sense is that, in contrast to the US, the improvement in Irish consumers spending plans is driven by a sense that household finances are set to improve rather than the view that the cost of large ticket purchases is set to rise.

The spending plan component of the survey has now risen in each of the past four months. As a result, the survey suggests that Irish consumer spending should be set on an improving trajectory in 2025 unless the global economic outlook deteriorates markedly.    

Section II; December sentiment survey’s version of a ‘Christmas Carol’ suggests consumers have widely differing views of the Irish economy’s past, present, and future.

As usual, the Credit Union Consumer Sentiment Survey (in partnership with Core Research) included a couple of supplementary questions on topics of current interest.

With deepest apologies to Charles Dickens (and book and Christmas lovers everywhere), this month’s special questions borrowed from the theme of 'A Christmas Carol' and asked Irish consumers to contemplate whether their economic and financial circumstances were better or worse than those faced in the past, those facing consumers in other countries at present, and those likely to face Irish consumers in ten years’ time.

Is the past another country?

What form does the economic Christmas ghost take?  Well to butcher the opening line of a Christmas Carol, the Irish economy of our parents’ generations (like Marley) was dead to begin with.  On most ‘macro’ metrics, the Irish economy today is far healthier than was the case twenty, thirty or fifty years ago.

Compared to even twenty years ago, there are an extra 810k people at work in Ireland today and, corrected for higher prices, 'real' economy-wide household income is two-thirds higher. When account is taken of the increased population, average incomes are 25% higher now than in 2004.

Central Bank data suggest aggregate household net wealth in Ireland has increased in nominal terms from €492mio in 2004 to €1147mio in mid-2024. Although increasing gaps in the distribution of this wealth may have weighed on some consumers views on Ireland’s economic progress, various estimates of income inequality also suggest some improvement on this score in Ireland through the past 20 years.    

As the diagram below indicates, more consumers think the Irish economy of today is better for them than it was in the past but the gap between positive and negative responses (47% v 34%) is far smaller than might be suggested by a comparison of official economic statistics for the present-day Irish economy and any past period.  


 We think two reasons might be advanced to explain why Irish consumers are less positive about the economy now than standard measures of economic performance might suggest.

First of all, it should be remembered that the Credit Union Consumer Sentiment Survey (in partnership with Core Research) is measuring sentiment rather than economic statistics. The dominant influence on consumer thinking in Ireland (and in most other countries) in recent years is a surge in living costs unparalleled in more than forty years that followed the first global pandemic in a century.

With war in Ukraine and the middle east further darkening the global outlook and increasing question marks about the direction of political leadership worldwide, it becomes a little clearer why some Irish consumers feel economic conditions are more turbulent and threatening now than they were in the past.  

The second reason why responses from Irish consumers may vary on this question is that the economic and financial circumstances vary widely across consumers at present.

Not surprisingly, those consumers saying they have difficulty making ends meet were notably less positive about current economic circumstances while positive views increased consistently as incomes increased across the spectrum of respondents.

While responses did not vary dramatically across demographic groups, the most positive view of current economic conditions compared to those of their parents’ generation came from those aged over 55.  In light of the transformation of the Irish economy over the past half-century, this is not a surprising result.

In contrast, the least positive views of current relative to past conditions came from those aged under 25, with those aged under 35 also notably less positive than older age groups. It might be suggested that access to the property market could be a key factor in these results.

As responses from females were markedly less positive than from males, access to childcare (as well as income differences) may also be seen as greater issue now than in the past.    
 

Far away fields may look more glittering at Christmas  

While the sense of the past may vary widely across Irish consumers of different ages and circumstances, it might be expected that there would be be more consistency in the sense of how the Irish economy currently compares to other ‘western’ economies.

Again, most international comparisons paint a very favourable picture of today’s Irish economy. The Economist magazine (Which economy did best in 2024? 10/12/24) recently ranked the performance in 2024 of 37 what it terms ‘mostly rich’ countries on five ‘macro’ metrics (GDP, stock market, unemployment, inflation, and the public finances).

Ireland came in second place of the 37 countries, behind Spain, with commonly compared countries like the US (20^th place), Australia (21^st), Norway (22^nd), Germany (23^rd), France (26^th), and the UK (31^st) all lagging some way behind.         

In the same vein, financial markets continue to register their confidence in current Irish economic and fiscal conditions with Irish 10 year Government bond yields trading just 28 basis points above their German counterpart, compared to notably larger gaps of 70bps for France,  60 bps for Belgium,  61 bps for Spain, and 166 bps for Italy (all data as of 19/12/24).   

Of course, it is widely recognised that Ireland is a relatively high-cost country, with Eurostat data showing the level of consumer prices here is the second highest in the EU27 and stood some 41% above the EU average in 2023.

However, less commonly watched Eurostat data also show that 'equivalised median net income' (a measure of incomes across the economy) for Ireland was also among the highest in the EU and stood some 50.8% above the EU average in 2023, thereby more than compensating for comparatively high prices. Eurostat data also point to income inequality in Ireland being consistently lower than the EU average.   

Against this backdrop, it may seem slightly surprising that the diagram below indicates that opinion among Irish consumers is roughly equally divided between those who think conditions here are better (30%), broadly similar (36%), or worse (31%) than in other countries at present.


Again, it is important to note that all demographic groupings showed mixed responses to this question. Those aged over 55 were more likely to express a positive view on Ireland and less likely to express a negative view than younger age groups. While those aged under 25 were less likely to express a positive view, they were not significantly more likely to express a negative view.

The most striking aspect of answers to this question was that male respondents were almost twice as likely to say Ireland compared favourably to other countries and female respondents were nearly twice as likely to say Ireland compared unfavourably to other countries.

This variation may be linked to differences in respondents’ incomes as similar scale divergences were reported between those consumers experiencing difficulties making ends meet who were comparatively negative about Ireland relative to other countries while those saying they can readily make ends meet tended towards a comparatively favourable view of Ireland.  

Favourable assessments of Ireland relative to other countries tended to increase with income and one might speculate that perceptions of better social provision in other countries as well as access and affordability to housing and childcare could also be factors in some of the more negative assessments of Ireland.
 

Will the Irish economy be feasting or frightening in ten years’ time?

In Dickens Christmas Carol, the most terrifying spirit to appear to Scrooge is the ghost of Christmas yet to come.

It would not be entirely surprising to find some sense of negativity in Irish consumers thinking as to how their circumstances might have changed in ten years’ time.  

In part, this could reflect a strong sense that global geopolitical stability is now more threatened than at any time in recent memory. In addition, Irish consumers have a very recent and painful experience of how sharply economic conditions can deteriorate from a position of apparent strength.

Longstanding difficulties in rectifying problems in housing and healthcare might also condition a cautious view of the future as would the huge task to tackle climate change.

So too, would the focus in most domestic commentary on the substantial risks posed by a heavy dependence on the multinational sector for Ireland's economic growth and unrelenting criticism of the management of the public finances.

For these varied reasons, it is not altogether surprising that as the diagram below indicates, more Irish consumers envisage economic conditions will be weaker rather than stronger in ten years’ time.

However, it should be emphasised that as the Irish economy is now delivering strong increases in activity and employment as well as heathy public finances, it could be argued that it would be hard to improve on current performance. Consequently, those consumers expecting future performance to be similar to today are pointing to the persistence of very positive economic conditions.

As the diagram indicates, there is again a roughly three-way split, with broadly similar numbers of consumers suggesting the Irish economy will be stronger (30%), the same as today, (29%), and weaker than today (34%).
Once again, female respondents were notably more negative than males and the incidence of positive views also increased with income and with ability to make ends meet at present.

Views were more polarised among the under 35’s with a stronger incidence of both positive and negative view than across the survey as a whole. Perhaps surprisingly, the most negative demographic was those aged 55 to 64 where views could reflect concerns about their capacity to provide for their retirement years as well as current financial commitments.        

In marked contrast to Dicken’s ‘Christmas Carol’ where the wealthy Scrooge was miserable and the long-suffering Cratchit family was poor but happy, there is a strong sense in these sentiment survey special question results that in Ireland in 2024 if money doesn’t make consumers altogether happy, it at least allows an important measure of comfort. After the recent cost-of-living crisis, this is not an entirely surprising finding.

However, the clear economic message of 'A Christmas Carol' is that the transformative (Pareto)optimal outcome can only be delivered by an efficient and equitable re-allocation of resources and by an appreciation of the importance of social capital in the here and now (rather than Scrooge simply adding to large funds for an unknown future).

Just as Dickens pictured Scrooge being willing and able to amend his ways and alter his and others’ futures, the encouraging reality is that the Irish economy currently has the capacity, financial and otherwise, to deliver a favourable and fair future for all both in terms of incomes and economic and social infrastructure.