Unleashing power of consumers can drive recovery
But a raft of new taxes and a dearth of bank lending will destroy any green shoots
You have to look a little closely to spot them, but Tuesday's retail sales tell us three important things about the economy: that the Irish consumer is a giant with awesome power that, if unleashed, could drive a vibrant recovery, that population growth is what gives this giant its power and that too much taxation and too little credit are holding it back.
In Britain and Germany, where banks are working and taxes are falling, consumer confidence is now back to pre-crisis levels. The same is true in Ireland. But here core retail sales are down 13.5 per cent on 2007 so while confidence is back to pre-crisis levels, spending is not. Spending is growing again and even picked up at the year end with a 3 per cent December rise beating the 0.7 per cent average for 2013. That pick-up should help recent forecasts of Ibec and the Central Bank – for growth of 2 per cent or more this year – to become a reality.
But consumers could be doing much more, just look, for example, at the rate of growth in furniture and lighting in December: up a staggering 21 per cent in just 12 months, this shows what a very modest upturn in housing market activity can achieve. Now imagine a sustained upturn. Three other increases over that period – the 5.4 per cent rise in clothing, footwear and textiles, the 6.2 per cent rise in electrical goods and the 7.6 per cent rise in motor sales – all have one thing in common: they are driven by population growth.
But although a powerful engine, population growth can only work if government lets it. That means replacing an agenda of tax increases with real reforms and getting bank lending back to normal. Central Bank figures out Friday show that bank lending to households is still falling by 4 per cent. There was a hopeful increase, though, in lending for consumption. But the continued falls in mortgage lending are stymying the economy..
Despite strong falls in disposable income, that growing population is already having a remarkable effect: according to most recently available data, disposable incomes fell 15 per cent between 2008 and 2011. Between 2008 and 2013 it seems reasonable to assume they fell by 20 per cent.
So the fact that overall retail sales volumes are down by 21.5 per cent since 2007 levels makes a lot of sense. But look at how some categories of sales are defying that trend: food and drink sales are actually 1 per cent up on 2007 and sales of clothing and footwear – although down on 2007 are only down by 5 per cent and are now starting to grow strongly. More impressively sales of electronic goods – TVs, fridges, washing machines, computers and mobile phones – are up 14.8 per cent on 2007.
This competitively priced sector shows how free markets can deliver growth. Along with competitive pricing, the rise of around a third of a million in the population since 2007 has been a key factor driving these growth rates and in returning employment in the sector to mid-2005 levels.
So for some sectors it is almost as if the recession never happened. Except, unfortunately, it did. And so did tax hikes that went beyond what were needed; the local property tax, water charges, health insurance hikes and various levies have drained the power of consumers.
And growing families have cut back: despite a third of a million extra punters since 2007, spending in bars is down by a third. Sales of books and newspapers are down 44 per cent and we are buying only half as many cars as we did in 2007. And while they grew last year, hardware sales furniture and lighting sales are down 38.5 per cent and 47.2 per cent respectively on 2007.
But wait a minute: shouldn't car sales, hardware furniture and lighting benefit from population growth? Yes, they should. But as "big ticket" they usually require a loan to fund their purchase. And that means that banks need to be lending and consumers need to be confident that their ability to repay won't be clobbered by future tax increases. Until now those two ingredients for recovery have been lacking. And even if taxpayers weren't overtaxed, they would need banks to translate repayment capacity into a loan.
Irish consumers are rearing to go. Let's set them free.
Marc Coleman presents 'The Marc Coleman Show' each Sunday from 9pm on Newstalk 106-108fm.