Consumer mood has darkened despite record net worth

Incredible though it may sound, Irish households are now 76 per cent wealthier, technically speaking, than they were at the depth of the recession. Their collective net worth hit a new record of €757 billion in the second quarter of 2018, according to the latest figures from the Central Bank.

The pre-crash peak of €719.6 billion, reached in the second quarter of 2007, fell all the way down to a post-crisis low of €430 billion in the second quarter of 2012, before recovering.

Household net worth is calculated by adding the total value of the housing stock and financial assets (savings and investments) and subtracting the sum of the debt owed. So what these numbers tell us is less about how prosperous we feel and more about the story of the property boom, crash and subsequent recovery in values.

Mortgage holders will doubtless feel less financial anxiety if they have climbed out of negative equity, but that doesn’t necessarily translate into more cash-to-splash. Household net worth totals and averages also say nothing about the unequal distribution of assets and debts across income and age groups.

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Brexit-addled vibe

Do we feel wealthy? The most recent consumer sentiment index from KBC Bank Ireland and the Economic and Social Research Institute points to more of a muddling-through, steady-as-she-goes, post-recession, Brexit-addled vibe.

Confidence has dropped off since the summer and is now hovering close to a four-year low, with Irish households more downbeat about the current state of their finances and more cautious about spending. It is hardly ideal mood music for Irish retailers coming into the critical Christmas season.

As a proportion of disposable income, household debt may be falling fast, but as the Central Bank noted, Irish households are the fourth most indebted in the EU. This doesn’t give us much breathing room if the economy does take another turn.

So while household net worth in the State now stands at the equivalent of €155,856 per person, the average Irish person is unlikely to be rushing out to spend it all in the one shop.