13/3/2014: Domestic Demand 2013 - A Black Hole of Booming Confidence...

This is a third post on the 2013 national accounts.

Remember that boisterous claim by the Irish Government that our economy is growing at rates faster than the euro area average? Eurozone GDP down 0.4% y/y in 2013. It is down 0.65% in Ireland.

That was covered in previous posts here: http://trueeconomics.blogspot.ie/2014/03/1332014-gdp-down-gnp-up-as-2013.html and here: http://trueeconomics.blogspot.ie/2014/03/1332014-what-was-tanking-what-was.html

But aside from that, QNA also provides a look into the dynamics of domestic demand, which gives a much more accurate picture than GDP and GNP as to what is happening on the ground in the real economy.

Chart above shows y/y changes in domestic demand and its components.

Good news: Gross Fixed Capital Formation was up in 2013, rising EUR710 million y/y.

Bad news: everything else is down:

• Personal Consumption down EUR941 million y/y in 2013 - a massive acceleration in decline compared to the drop of 'only' EUR229mln in 2011-2012.
• Net local and central Government spending on current goods and services (so excluding capital investment) is down EUR135 million. I guess one might be tempted to say that is good, because it is an 'improvement' of sorts on a drop of EUR963 million in 2011-2012, but getting worse slower ain't exactly getting better…
• Final domestic demand posted another year of contraction. In 2012 it was down EUR1.361 billion on 2011. Last year it shrunk EUR366 million on 2012.

In simple terms, domestic demand is now down every year since 2008 and 2013 levels of real domestic demand are down 18.4 percent on their 2008 levels. In 2013, final domestic demand was down 0.3%.


Personal consumption was down 1.15% y/y, net spending by Government on current goods and services was down 0.55% y/y, gorse fixed capital formation was up 4.15%. Something must have happened to all the confidence consumers were having throughout the year… or at lest conveying to the ESRI researchers...

In summary: there is no recovery in domestic economy. None. Which begs a question: what were all those jobs that we have 'created' in 2013 producing? We know that the 'farming jobs' added were generating output equivalent (on average) to EUR 9,900 per person. The rest? Maybe they were measuring confidence?

Chart below shows 2013 demand compared to 2010, 2011 and 2013 levels.

Good thing foreign investors and cash buyers are snapping those D4-D6 houses, because without them, the rest of the domestic economy is still shrinking…

11/7/2013: Consumer Confidence Boost in June

ESRI/KBC Consumer Confidence indicator for Ireland posted a surprising jump in June compared to May, rising to 70.6 from 61.2. The index is now at the highest reading since October 2007. There are many caveats to this increase, as contained in the ESRI/KBC release, available here:
http://www.esri.ie/irish_economy/consumer_sentiment/latest_consumer_sentiment/PRJune_13.pdf

The chart below plots June reading for the indicator (vertical red line), as well as the latest (May 2013) pairings of Consumer Confidence against Volume and Value indices of retail sales (labeled as 'Current').

The chart below puts the time series for retail sales (through May) and Consumer Confidence (thorugh June):

The core points to add to the release (linked above) is that

1. Consumer Confidence has little direct connection to core (ex-motors) retail sales indices, with low R-squares for both relationships.
2. Consumer Confidence shows more volatility than the volume of retail sales across all time periods. Pre-January 2008, STDEV for Value of Retail Sales is at 7.0 and for Volume at 6.6, with Consumer Confidence at 14.8. Since January 2008, Consumer Confidence STDEV is at 7.9, against 4.5 for Volume and 7.4 for Value of core retail sales. Since January 2010, STDEV to Consumer Confidence is at 6.3, against that for Value of retail sales at 1.3 and Volume of 1.8.
3. Last chart above clearly shows divergent trends in retail sales and confidence series from July 2008 through June 2010 and from March 2011 through today.

This is not to criticise the Consumer Confidence Indicator quality, but to caution against any short-term calls to be based on indicator alone. To see serious change in the underlying consumer propensity to spend and to see any serious change in the underlying inputs into the national accounts, we have to wait for a confirmation over time of the stronger trend in all three series.

28/6/2013: Expenditure Components of GDP: Q1 2013

Having looked at the recession/expansion dynamics in Irish economy on foot of Q1 2013 figures (here),  the dynamics in GDP and GNP in Ireland at the aggregate levels (here), and the mythology of the 'exports-led recovery' (here), let's round up the Q1 2013 QNA cover with a look at the expenditure-lined components of the GNP and GDP.

Below we look at the Seasonally-adjusted Current Market Prices data.

Personal Expenditure on Consumption Goods and Services fell 2.21% in Q1 2013 q/q and was up 0.01% y/y. This compares against much more benign drop of -0.07% q/q in Q4 2012 and a 1.15% rise y/y. Since Q1 2011, when the Coalition came to power, Personal Expenditure is down 1.55%. In terms of q/q changes, Q1 2013 marked second consecutive quarter of declines.

Net Government Expenditure on Current Goods and Services declined 0.1% q/q in Q1 2013 and was down 2.56% y/y. This marks moderation in declines recorded in Q4 2012 when q/q decline stood at -1.90% and y/y decline was running at -2.88%. Net Government Expenditure decline was the shallowest contributor to voerall economic contraction recorded in Q1 2013. Compared to Q1 2011, Net Government Expenditure on Current Goods & Services was down 3.98% in Q1 2013. In terms of q/q changes, Q1 2013 marked second consecutive quarter of declines.

Gross Fixed Capital Formation - the most devastated expenditure component of GNP to-date has fallen massive 7.32% in Q1 2013 in q/q terms and was down whooping 18.74% in y/y terms. This shows dramatic acceleration in decline from -2.16% drop in q/q terms in Q4 2012 and the reversal of the y/y rise of +4.31% recorded in Q4 2012. Relative to Q1 2011, Gross Fixed Capital Formation was down 14.25% in Q1 2013. In q/q terms, Q1 2013 marked second consecutive quarter of declines.

Exports excluding factor income shrunk 0.79% in Q4 2012 on q/q basis and there was 4.93% growth in y/y terms. This was then. In Q1 2013 exports of goods and services fell 4.59% q/q and were down 3.13% y/y. Relative to Q1 2011 exports of goods and services net of factor income payments were up 2.22% in Q1 2013, but we also marked two consecutive quarters of contraction here.

Imports of goods and services, net of factor income payments were down 2.12% q/q in Q1 2013 and -3.13% y/y. This marks significant shift 'South' in the series compared to Q4 2012 when imports shrunk 1.05% q/q and were up 4.57% in y/y terms. Imports are running -0.05% down on Q1 2011 and Q1 2013 marks the second consecutive quarter of q/q declines.

GDP at curent prices, seasonally adjusted fell 0.6% q/q in Q4 2012 and there was annual growth of 0.38%. In Q1 2013, GDP fell 2.16% q/q and there was annual decline of 2.09%. This marks third consecutive quarter of decline in GDP and thus officially, return of the recession is dated to Q4 2012. The average rate of recessionary decline in GDP in the current episode is so far -1.06% per quarter. This is shallower than the previous recessionary episode (Q4 2008-Q4 2009) when GDP contractions averaged 2.76% per quarter. Compared to Q1 2011, Q1 2013 GDP at current market prices stood at -1.04%, or put differently, gross domestic product in Ireland in Q1 2013 stood below the levels attained in Q1 2011 when the current Government came to power.

Net factor income from the rest of the world declined in both Q4 and Q1, with decline accelerating in Q1 2013 to 19.21% q/q from 2.92% in Q4 2012. As the result of this, GNP moved up, in the opposite direction of the GDP.

GNP at current market prices grew 0.68% q/q in Q1 2013, down on 1.18% expansion recored in Q4 2012. On y/y basis, GNP grew 4.12% in Q4 2012 and by 4.26% in Q1 2013. Compared to Q1 2011, GNP is now up 2.46%.

Both Final Domestic Demand and Total Domestic Demand posted second consecutive quarter of q/q contraction in Q1 2013.

To summarise, not a single line of expenditure posted an increase in the Q1 2013 in terms of q/q changes once seasonal adjustments are taken into the account. In other words, the sole positive improvement in the numbers - relating to GNP - was driven exclusively by reduced outflow of funds from MNCs.

Worse, not a single line in the determination of the GDP in Ireland was up in q/q terms in any quarter since the end of Q3 2012. We had, put differently, 6 months of across the board contractions in the economy, when we consider expenditure-based definition of GDP.

27/7/2012: June 2012 Retail Sales for Ireland - Massive Disappointment

This is a second post on irish retail sales for June 2012. Digging through the numbers, the results released today by the CSO are just short of horrific.

Look at the following two charts:

So Q1 and Q2 2012 have witnessed some of the deepest falls in value and volume since Q1 2010. 

Monthly changes for June were equally bad:

To sum up:

• Value of sales is now at the lowest point since January 2010, m/m decline is the sharpest in 5 months and y/y decline is the steepest since January 2010.
• Volume of sales is at the lowest point since January 2010, and y/y decline is the steepest since December 2009.
• Ex-motor sales, value of sales index is now at the lowest point on record, m/m decline is the sharpest on record.
• Ex-motor sales, volume of sales are at the lowest point on record, m/m decline is sharpest in 5 months.

Not good!

27/7/2012: Irish Retail Sales June 2012 and 'Confidence Fairy Tales'

Irish Retail sales data is out for June 2012. Here are the updates to charts:

In the above:

• The volume of retail sales (i.e. excluding price effects) decreased by 0.7% in June 2012 when compared with May 2012 and there was an annual decrease of 5.5%. 
• If Motor Trades are excluded, the volume of core retail sales decreased by 1.51% in June 2012 when compared with May 2012, while there was also an annual decrease of 1.71% when compared to June 2011.
• The sectors with the largest month on month volume decreases are Food beverages & Tobacco (-9.7%), Hardware Paints & Glass (-4.8%), Fuel (-3.9%). 
• A monthly increase was seen in Electrical Goods (2.9%), and in Books, Newspapers and Stationery (2.6%).
• The value of retail sales decreased by 1.3% in June 2012 when compared with May 2012 and there was an annual decrease of 4.9%. 
• If Motor Trades are excluded, there was a monthly decrease of 2.08% in the value of retail sales and an annual decrease of 0.95%.
• Do note two sub-trend lines showing the complete detachment of Consumer Confidence trend from the Retail Sales trend. That (discussed more below) is probably the real illustration of the so-called 'confidence trick' not working in the real world.

Adding a bit more definition to core sales changes:

• Value of core retail sales (the index I prefer to consider in this environment, as opposed to CSO focus on volume of sales, which tells me preciously nothing about the revenues and employment in the sector) is down 1.57% in June compared to March 2012. 6mo average is now running at 95.4 against previous 6mo average of 95.2. This means that last 12 months we are running below 2010-2011 average of 96.6. 
• Compared to 2005 levels, we are now 5.72% below in value terms.
• Volume is down 0.91% on March 2012 level and 6mo MA is now at 98.65 against previous 6mo MA of 99.5 and 2010-2011 average reading of 101.23.
• Compared to 2005 levels, volume of retail sales is down 2.02%.
• Despite these deep falls, consumer confidence (I should start calling it La-La-La Index) from the ESRI came in up-beat at 62.3 in June up on 61.0. Relative to March 2012, Consumer Confidence apparently rose 2.81% and y/y June Consumer Confidence is up 10.66%. Wow, things are really hotting up, folks. 6mo MA through June is boisterous 60, up on previous 6mo MA of 56.3 and ahead of 2010-2011 average of 57.3. 
• Compared to 2005 average, current Consumer Confidence is up 23.06%.
• To summarize: actual retail sales are down in volume (-2.02%) and value (-5.72%) on 2005 average readings in June 2012, but Consumer Confidence is up 23.06%. 

Unlike ESRI's Consumer Confidence indicator, my own Retail Sales Activity Index posted contraction in June, in line with twin fall-off in retail sales in volumes and value: