Thursday, April 1, 2021

The household sector in 2020

The CSO have published the Q4 2020 update of the non-financial Institutional Sector Accounts.  While there may be some revisions when the annual accounts are published later in the year, the quarterly data can be used to get preliminary figures for the year as a whole. 

Here’s the household sector current account for the past four years as well as the annual change in 2020.

Household Sector Current Account 2017-2020

The bottom section tells us that the disposable income of the household sector rose by just over four per cent in 2020.  The biggest reflection of the restrictions that were in place for much of the year is the nine per cent reduction in consumption expenditure.  This meant that the gross saving of the household sector almost doubled in 2020, reaching €28 billion and giving an unusually high savings rate of 23 per cent.

Although it looks like there was relatively serene progression in the aggregate income of the household sector in 2020 there was obviously a lot going on above that.  In overall terms, the compensation of employees received by the household sector was essentially flat in 2020 showing a fall of just –0.3 per cent.  This, however, masks a difference across sectors with all sectors bar the government sector showing a fall in 2020.

Compensation of employees from the government sector rose a further eight per cent in 2020 to almost reach €25 billion.  The increase since 2015 is almost 30 per cent.

GG CoE Paid 2006-2020

The nearly €2 billion rise in compensation of employees from the government sector almost fully offset the reductions elsewhere.  And those reductions would have been even larger were it not for the various wage subsidy schemes introduced which provided a subsidy to firms to support their wage payments to staff.

A little further down, we see that social benefits received by the household sector (excluding benefits in kind) from the government sector jumped from €24 billion in 2019 to €30 billion in 2020.  This increase was primarily driven by the Pandemic Unemployment Payment (PUP) though even the absence of this scheme there would have been an increase in these transfer as most, but not all, of the people impact would have been eligible for existing income supports.

And those are the most significant changes in the table.  It looks like there’s something going on with the FISIM adjustment but it seems to largely net out across interest paid and interest received.  There has been a reduction in contributions to private pensions in recent years. Social contributions paid to the financial sector have gone from €7.3 billion in 2018 to €5.9 billion in 2020.

This is perhaps surprising given the general increase in savings behaviour in 2020.  However, there was still a greater amount contributed to private pensions funds then paid out in benefits from those funds – the adjustment for pension entitlements in the second-last row was +€1.4 billion.

We can turn to the capital account to see what happened to see how the rest of the savings were used.

Household Sector Capital Accounts 2017-2020

Gross capital formation by the household sector was down in 2020, falling from €7.2 billion in 2019 to €6.8 billion in 2020.  This is probably not a surprise given that the main capital expense of the household sector is housing (purchases of new units and refurbishments of existing dwellings).  Restrictions would have reduced output in the construction sector.

The bottom line shows that most of the savings was carried through the capital account.  Net lending by the household sector exceeded €20 billion in 2020.  This means that most of the additional saving made its way to the financial accounts: higher deposits, lower loans and maybe increased investment in other financial assets but higher deposits and lower loans are likely to dominate.

To conclude here is the savings minus investment positions of the household and government sectors.  The figures shown are four-quarter moving sums.

Gross Savings minus Investment for Gov and HH 1999-2020

The turmoil of 2020 is clearly seen but is also noticeable is that as the year progressed the [S – I] deficit of the government sector was growing faster than the [S – I] surplus of the household sector.  The overall position across the two sector was still positive: if necessary the deficit of the government could be funded from domestic sources. 

Maybe the next 12 months will see an erosion of that savings behaviour possibly to fund a consumption boom which, in turn, will boost the government’s position.  It doesn’t even need the accumulated savings to be unleashed, just a reduction in the savings rate.

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