Economy continues to flatline: not the news you want to hear before going on holiday

If you are cheerily packing up your bucket and spade and want to keep your happy holiday buzz going, look away now.

Yesterday’s economic numbers would kill anyone’s buzz. Three separate sets of data, when analysed in depth and considered together, tell a by-now tiresomely familiar tale: the economy is flatlining.

While the jobs market continues to improve very slowly – a trend in evidence for a year and more – consumer spending is still falling gently.

This is in part because the banks remain broken and are not fulfilling their credit-provision role, as the third set of numbers showed yesterday.

Among many people there tends to be a near Pavlovian reaction when they hear of a fall in the jobless rate .

“It’s only because so many people are emigrating,” they bark.

There is no doubt that some of those who sign off the Live Register are climbing aboard airplanes in the hope of finding their fortunes abroad. But that is not the only reason unemployment is falling.

The shortening of the queues over the past two years is also explained by more people at work in the economy and more younger people staying in education (the latest figures show that the student population has hit a record high despite a non-emigration related decline in the under-25 age cohort).

But given that the increases in the numbers at work have been limited and mostly relating to part-time roles, and that pay rates are largely stagnant, aggregate consumer income in the economy is showing little sign of growth.

Rainy day funds
Moreover, a large chunk of that income is being saved in order to pay down debt and build up rainy day funds.

Yesterday’s figures from the Cental Bank show that households have collectively paid off a massive (net) €40 billion in debt over the past half decade, while adding around €8 billion to the aggregate amount they have sitting in bank accounts over the same five-year period.

When one considers the trends in paying off debt, boosting savings and aggregate incomes growth, it is little wonder that yesterday’s retail sales figures show consumer spending is still face down on the floor.

The banking system has a big impact on economic activity in more ways than one. Businesses need access to credit if they are to invest and expand. Among the grimmest figures released yesterday was the ongoing and still marked fall in lending to companies. The figures show no sign of the decline bottoming out.

Happy holidays.