Friday, January 13, 2017

The latest household sector accounts

The CSO have published the Q3 2016 update of the Non-Financial Institutional Sector Accounts.  Here we focus on the household sector and try to reproduce the accounts in a somewhat readable form.

First, the current account with figures for the sum of the first three quarters extracted for a selection of years.

Household Sector Accounts Q1-Q3  2007-2016

Estimates of output and intermediate consumption are only provided with the annual versions of these accounts so we start with Gross Domestic Product (akin to value added).  After subtracting wages paid by the household sector (by the self-employed etc.) and netting out taxes and subsidies on production we are left with Gross Operating Surplus/Mixed Income of the household sector.

This has risen to €17.8 billion from the €15.0 billion trough for the first three quarters of 2011 but remains below the 2007 peak of €19.2 billion (likely due to much reduced self-employed and contracting work in the construction sector).

Compensation of employees (wages) is up on 2007 levels.  The total of wages received from all sectors for the first three quarters of 2007 was €57.8 billion while the first quarters of 2016 recorded a total of €62.1 billion.  This improvement is driven by increases in wages paid from the corporate sectors with wages from the government and household sectors largely flat.

Compensation of employees from the non-financial corporate sector for the first three quarters of the year has improved from €29.5 billion in 2011 to €38.3 billion in 2016, a 29.8 per cent increase that definitely does mean something positive.  Pay from financial corporates is up on 2007 but has been flat for the past few years.

With our heavily-indebted households also benefitting from lower interest rates (though note the FISIM adjustment affects the interest figures in the table) it means that the Gross National Income of the household sector is now ahead of the 2007 level with Q1-Q3 aggregates of €77.9 billion then versus €82.1 billion now.  And compared to the trough of €66.9 billion in 2011 the increase is obviously much larger.

Although taxes on income and wealth and social contributions paid to the government (mainly PRSI) are higher than 2007 (up €3.5 billion) these are largely offset by increased social benefits paid by the government sector (up €3 billion).  This means that the changes in Gross Disposable Income largely track the changes in Gross National Income (though obviously there will be distributional effects that these aggregate data cannot pick up).

Gross Disposable Income has grown 10 per cent in the past two years.  The annual rate of growth for the first three quarters of the year has slowed from the 5.8 per cent recorded in 2015 to 3.6 per cent in 2016.  Still a pretty impressive lick all the same.

While the household sector has extra income available for consumption it is not being spent.  Gross Disposable Income for Q1-Q3 might be around €4 billion up on its 2007 level but household consumption expenditure is fairly close to the 2007 level (€66.3 billion in Q1-Q3 2016 versus €65.5 billion in 2007).

Income growing by more than spending means that the savings rate is higher.  The gross savings rate has hovered around 13 per cent in Q1-Q3 for the past few years compared to 10 per cent in 2007.  Our annual consumption splurge in Q4 will probably bring the full-year rate for 2016 down to around 11 per cent but this is well up on the levels seen in the years up to 2007 when it was consistently below 10 per cent.

Of course, the next question is what are we doing with those savings?  In 2007 we were using them (and a whole lot of borrowing) to buy houses.  That ended abruptly and the picture from the capital account has been wholly different since then.

Household Sector Capital Accounts Q1-Q3  2007-2016

In 2007, the household sector’s Gross Saving of €7.1 billion was significantly less than the €18.6 billion of gross capital formation undertaken by the household sector (mainly on new houses).  This meant that the household sector was a net borrower in the non-financial accounts to the tune of €11.6 billion.  [Of course, overall borrowing by the household sector was much larger but a lot of that was to buy existing houses of each other so appears in the financial accounts.]

The household sector has been a net lender since 2009 averaging just over €4 billion a year for a total of €29 billion.  Gross Capital Formation by the household sector has begun to increase and the growth rates are impressive.  The figures in the above table show a growth rate of 15 per cent in 2015 with this rising to 20 per cent in 2016.  But this is from an very low base.

It can be seen that for most recent years Gross Capital Formation was just ahead of depreciation (consumption of fixed capital) so there would have been little increase or improvement in the capital stock held by the household sector (mainly houses).

There has been a significant reduction in the gross indebtedness of the household sector.  Total loans outstanding were €203 billion at the end of 2008 and will likely have fallen to €140 billion at the end of 2016.  Some of the €29 billion of net lending identified above will have been used to repay debt while others will have sold assets to repay debt.

All in all, the ISAs show strong improvement in the current account for the household sector but the capital and financial accounts show that this is needed, and more, as we continue to work through the legacy effects of the boom/bust.

1 comment:

  1. Great post Seamus.

    This dramatic improvement in household welfare is something almost entirely missing from commentary by journalists.

    It would help if the CSO put the institutional sector accounts in a vaguely intelligible format (like yours). As it stands they can only be understood by a dozen or so people who have to do their own manipulation afterwards.

    The contrast with user-friendly data releases (for example SILC and CPI) is quite stark.