Feelgood factor should be tempered with caution

Economists often struggle to isolate the factors that are driving an economy up or down.

Historic data is a cornerstone of any economic analysis, so having your finger on the pulse of what is happening in real time can be a challenge.

I say this because there is — dare we say it — a feelgood factor taking hold within the Irish economy. That sounds bonkers in an environment that was so recently defined by high emigration flows, job losses, fears about the economy’s existence and widespread social unrest.

However, just look around you and some strange things are evident.

A friend of mine runs a chain of coffee outlets and he says his average customer has stepped up spending by over 10% in the first two months of 2015 compared to 2014.

Prices have not changed materially, and the absolute number is low at about €3, but his customers are picking out a bun here or upgrading to a latte there. Why are they doing that?

Driving home in recent days I was moaning to myself about a traffic jam on the road to our house.

It was not an accident or construction works that were holding me up but rather higher volumes of vehicles compared to recent years. Each one of those cars was carrying someone who had the income to fuel, tax and insure their journey, a reflection of better times.

Contrast this scenario to about five years ago. Then, all of us knew someone who was under real pressure at work, because their employers were giving stark warnings about finances.

Many private companies were enduring weak demand and poor profits that created a threat over wages and actual jobs.

In the public sector a huge contraction in tax revenues was forcing a range of state departments to curb recruitment, cut salaries and reduce overtime.

On top of those public and private sector challenges, the emigration tap was in full flow.

That package created a general sense of negativity that converted into more conservative spending patterns.

In the same period, aggregate personal debt levels were high due in particular to mortgage excesses and the accompanying collapse in house prices depressed sentiment even further.

The recent recovery in house prices and the continued descent of European interest rates has changed that momentum for the better.

Even if you were never in negative equity and have no plans to move house the fact that the value of your most important life investment has advanced in the last year has an effect on how you feel going to and from your home.

In the same way as it was inadvisable to take the scaremongering that defined the 2009-2011 period too seriously, a dose of reality should be ingested as things get better too.

A feelgood factor is not a licence to load up on consumer debt and binge spend through a recovery. Neither is it a signal to take work less seriously.

The Protestant ethic, a behaviour pattern that sometimes struggles to get traction in Catholic Ireland, is not a bad reference manual in this context.

It is defined as “a concept in theology, sociology, economics and history which emphasises hard work, frugality and diligence as a constant display of a person’s salvation”.

Perhaps this is a strapline that should be emblazoned over the Irish economy too.

If such attributes had been applied when we were all inebriated on an overdose of exuberance during the Celtic Tiger perhaps we could have done better.

Over the next year you are likely to hear more economic data that points to further positive momentum in the Irish economy.

That data will be the tangible proof of what for now is simply a feelgood factor. Enjoy it carefully.

Joe Gill is director of corporate broking with Goodbody Stockbrokers. His views are personal.

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