Consumers may be upbeat but they aren’t shopping

The problem is the improvement in consumer confidence has not yet translated into anything more than a modest improvement in consumer spending

In its latest report presented by economist Jim Power, Nielsen research looks at how ad spend fared in the first quarter of 2014

In its latest report presented by economist Jim Power, Nielsen research looks at how ad spend fared in the first quarter of 2014

Thu, Jul 3, 2014, 01:00

Could it be – whisper it – that Irish consumers think they have quite enough stuff and aren’t too bothered buying more. Or that, contrary to popular wisdom, some lessons really have been learned. That after the great spendfest of the Noughties – outdoor patio heaters, city breaks, Botox parties, it’s a long list – now that things are on the up again (slightly), shoppers just aren’t prepared to jump back into the consumption fray quite so quickly.

Since 2013, the Association of Advertisers in Ireland (AAI) has commissioned barometer reports which look at the advertising spend and how it relates to economic trends. In its latest report presented by economist Jim Power, Nielsen research looks at how ad spend fared in the first quarter of 2014. It shows a curious disparity between consumer confidence and spending.

In textbook economics, once people start to feel things are improving, they start spending. It’s why great emphasis is put that ephemeral thing “sentiment” in economic reports. It’s not happening now though.

In the first four months of 2014, the value of retails sales (excluding cars) increased by 1.3 per cent and the volume of sales increased by just 3.3 per cent. As Power notes: “There has been a marked divergence between consumer confidence, which is now at a seven-year high, and advertising expenditure, which is still very fragile.

“The problem is the improvement in consumer confidence has not yet translated into anything more than a modest improvement in consumer spending.”

He puts the sharp upturn in consumer confidence down to factors that include the improving labour market, a belief the economy has turned the corner, and that the painful fiscal adjustment is almost complete.

He doesn’t suggest the “maybe everyone has enough stuff” theory. Instead, our reluctance to recommence shopping for Ireland in the first quarter of 2014 is, he says, down to several factors starting with the March payout for many of the full-year 2014 Local Property Tax which will extract, he estimates, at least €750 million out of the economy over the coming months.

Higher health insurance costs, transport costs and the promise of water charges in the near future are making impulse or even non-necessity shopping seem unaffordable or unnecessary or both.

Advertisers are back – modestly – year-on-year in some sectors and in some media. In traditional media (press, TV, radio and cinema), advertising spend by supermarket and grocery chains increased by 15.4 per cent; department stores by 10.4 per cent and DIY stores by 9.9 per cent; motor insurance was up by 58.8 per cent, private healthcare insurance, 60.8 per cent, and mortgages by 183 per cent. Property advertising was up 28 per cent.

Then there are some curious figures such as the one for washing powders and liquids, which showed an increase in spend by 155 per cent, although this is likely to have more to do with how multinationals plan their advertising in this market rather than everyone suddenly deciding to wash their clothes.

Online expenditure was 22.6 per cent higher in the first four months of this year than the first quarter of 2013, and just over 300 per cent higher than the online spend in 2008 – although given that the iPhone had just been invented and the iPad didn’t come to market until 2010, digital figures from 2008 will always will be very low,but they do at least provide a starting point.

Expenditure on traditional advertising was just 1.7 per cent higher than the first quarter of 2013 – so much for rising confidence – while expenditure on traditional advertising was a painful 27.7 per cent lower than the first quarter of 2008. The total expenditure on advertising was 4.8 per cent higher than the first quarter of 2013; and 15.7 per cent lower than the first quarter of 2008. It’s far from an upbeat picture.

The challenge now, the report suggests, is to convert the improvement in consumer confidence into stronger spending. That’s before we all get too used to not spending at all.

Twitter @BerniceHarrison

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