BY JOHN ELLIS, FINANCIAL ADVISOR
According to the new ‘Looking Forward, Looking Back’ Credit Union survey for October, sentiment has improved as consumers took some comfort from Government measures introduced in the Budget to support household spending.
A special question though was asked that focussed on the extent of spending cutbacks being undertaken by Irish households. The responses to this special question suggests that cutting back is now and will continue to be a key feature of Irish consumer behaviour in the year ahead.
Only 7% of consumers say they haven’t needed to make cutback while three out of four consumers say they have had to cut back on necessities. All demographics reported widespread cutbacks but there were slightly more respondents reporting adequate funds to sustain spending among wealthier and older consumers (55+). These groups were also slightly more likely to report only cutting discretionary spend. Still, all demographics tended to show broadly similar response patterns.
The most mentioned cutback relates to ‘socialising’ as this is a flexible area of spending. With one in two consumers pulling back, it won’t help the overall mood of the country and it will put further strains on the business models of many restaurants, cafes, bars, and other areas of the hospitality sector. Wealthier and Dublin-based consumers tended to show less widespread cutbacks in this area than other groupings. The travel sector continues to have problems and these seem set to remain intense in 2023 as 40% of respondents also say they will be cutting back on holiday spending next year.
Unsurprisingly, surging energy prices remain central to current cost of living pressures, with two in five consumers making cutbacks in this area; the implication is many colder, darker homes this winter. “Less affluent consumers and those outside Dublin were more likely to report energy-related cutbacks. Perhaps surprisingly, those aged over 65 were also slightly less likely to report cutbacks in this area,” the survey says. “This result could owe something to Government support and/or pre-existing constraints on spending in this area by older households.”
The survey was taken after Budget 23 measures were announced. The fact that slightly more consumers say they will continue to make cutbacks in this area in the next 12 months emphasises the intensity of the pressures in this area.
Grocery spending for one in three consumers has been cut back giving a sense of the scale of current difficulties and unfortunately 6% say they are unable to make cutbacks as their spending is already at a minimum with a similar number expecting next year’s outgoings similarly compromised.
In terms of the Christmas spend, a substantial one in three consumers are cutting back on gift-buying, with responses suggesting the cost-cutting is likely to intensify rather than ease as we move forward. According to analysis by economist Austin Hughes on behalf of the Irish league of Credit Unions, “it is notable that cutbacks to child-related spending are markedly less widespread than in most other areas. In part, this may reflect relatively little spend in this area for some consumers but even in those age-groups typically parenting young children cutbacks were materially less pronounced than in other categories”.
One in three consumers are postponing ‘big ticket’ purchases such as cars, furniture, or electrical appliances while broadly similar numbers are cutting back on spending on repairs and maintenance. This could in time lead to increased risk of equipment failure resulting in increased financial pressures to replace problem goods as well as some element of safety risks.
Austin Hughes summarises: “These survey responses suggest that many consumers are undertaking major adjustments in their spending. Despite significant support measures in Budget 23, consumers see another 12 months of widespread cutbacks ahead of them.
“In that regard, these results suggest that Budget support measures could have been slightly larger in scale. The widespread nature of these cutbacks suggests consumers are experiencing a sea-change in their economic and financial circumstances at present,” he says.
“In turn, this explains the historically low Credit Union consumer sentiment readings at present. It also emphasises the extent to which Irish consumer spending may be constrained through the coming year.”