Positive start to 2018 for Bank of Ireland Economic Pulse

Consumer confidence at two year high and business sentiment up on last month

Consumers more upbeat about the buying climate
48% of workers expect a pay rise and a similar amount of businesses plan on increasing basic wages
Firms in all sectors upgrade near-term expectations for business activity
Housing Pulse points to further price gains in 2018

The Bank of Ireland Economic Pulse came in at 92.8 in January 2018. The index, which combines the results of the Consumer and Business Pulses, was up 3.9 on December but broadly unchanged on last January. A general improvement in sentiment took the Consumer Pulse to a two year high this month. Households also tend to be more upbeat about the buying climate when the post-Christmas sales are underway and this was the case again this year. On the business side, the Industry, Services and Construction Pulses were up on the month though the Retail Pulse was a bit softer.

Discussing the Economic Pulse, Dr. Loretta O’Sullivan, Group Chief Economist, Bank of Ireland said: “The mood music was positive this month, with data published by the CSO and the Department of Finance in recent weeks showing that the economy is doing well and that the public finances remain on track. January also saw the changes to social welfare payments and income taxes announced in Budget 2018 come into effect and while Brexit worries haven’t gone away, they took more of a back seat this month as attention turned to a possible transition period. As a result, the Economic Pulse started the new year on a positive note, with consumer confidence posting a two year high and business sentiment up on December’s reading.”

Consumer Pulse

The Consumer Pulse gained ground in January 2018, coming in at 100. This was up 5.3 on last month’s reading and 5.6 on a year ago. Households upgraded their assessment of the economy this month and, to a lesser extent, their own financial situation. With the post-Christmas sales underway, they were also more upbeat about the buying climate (41% considered it the right time to make major purchases like furniture and electrical goods compared with 34% in December) and one in four (27%) is likely to buy a car in the next 12 months.

While some of the improvement this month is due to seasonal effects, the Budget Day changes to social welfare payments and income taxes lined pockets in January, as did the rise in the national minimum wage, which helped lift the mood. Almost half of workers are saying that they expect a pay rise, which tallies reasonably well with the number of firms saying they expect to increase basic pay over the next 12 months.

Dr. Loretta O’Sullivan commented: “In January 2016, the unemployment rate stood at 9% and just 28% of households considered it easy to change jobs. Two years on and there has been a notable improvement in the labour market situation. The unemployment rate is now tipping the 6% mark, while 45% think it is easy to change jobs. This bodes well for households and for the economy, as consumers are expected to be a key driver of growth over the coming years.”

Business Pulse

The Business Pulse stood at 91.0 in January 2018, up 3.5 on last month but down 1.8 on a year ago. Firms in all sectors upgraded their near-term expectations for business activity this month, with those in industry, services and construction also more positive about employment prospects. The January data show that 44% of businesses are planning on increasing basic wages over the coming 12 months – this is up from 37% this time last year and reflects the tightening of the labour market in the intervening period as well as the higher national minimum wage that came into effect at the start of 2018 – while 48% of workers are expecting a pay rise.

Dr. Loretta O’Sullivan said: “The January survey finds that 44% of firms expect to increase basic pay over the next 12 months, to the tune of 3.6% on average. Looking further ahead, the majority of firms remain on a growth trajectory, with two in three having ambitions to expand in the next 1 to 3 years.”

Housing Pulse

At 117.2 in January 2018, the Housing Pulse was more or less flat on the month, though it was 5.8 higher than this time last year. House price inflation picked up during 2017 and further increases are expected this year as demand continues to outpace supply. 48% consider it a good time to buy and 59% think it is a good time to sell. The rental market is also under pressure, and with rents now well above their previous peak (in contrast to house prices), 71% think it is cheaper to buy than rent in their area. On the home improvements front, 29% indicated that they are likely to spend a large sum of money on doing up or renovating a property over the coming 12 months.

Discussing the Housing Pulse, Dr. Loretta O’Sullivan said: “The majority of Dublin households expect house prices and rents to increase in the next 12 months. The same goes for households outside of the capital. National house price inflation picked up during 2017 and was running at 11.6% year-on-year in November. Price increases are being driven by fundamental factors like population growth and rising employment and incomes. The lack of supply is also an issue, though housebuilding activity is ticking up. The pace is just not fast enough to meet demand, which will put upward pressure on prices again this year. The Housing Pulse – which is based on households’ expectations for house prices – also points to further price gains in 2018.”

Regional Pulse

The Bank of Ireland Regional Pulses bring together the views of households and firms in the various parts of the country. The results for January 2018 (3 month moving average basis) show that sentiment was up on the month in the Rest of Leinster, Munster and Connacht/Ulster but down in Dublin.

Households around the country upgraded their assessment of the economy and, for the most part, their own finances this month, with the survey also finding that most expect house prices and rents to increase over the coming year. On the business side, near-term prospects for business activity and hiring remained in positive territory in each of the four regions in January.

About the Bank of Ireland Economic Pulse:

The Bank of Ireland Economic Pulse survey is conducted in conjunction with the European Commission, with the data feeding into the EU Commission’s Joint Harmonised EU Programme of Business and Consumer Surveys, a Europe-wide sentiment study running since the 1960s. The Economic Pulse surveys are conducted by Ipsos MRBI on behalf of Bank of Ireland with 1,000 households and over 2,000 businesses on a range of topics including the economy, their financial situation, spending plans, house price expectations and business activity.