Is the Irish economy delivering wealth, well-being or worry?

The new consumer measure through the KBC consumer sentiment index suggests Irish people now have modestly positive sense of well-being that may fall short of ‘macro’ improvements in Irish economy

There can be widespread differences in current circumstances with some 28% expressing very positive views and 13% expressing negative views on their current well-being

Survey suggests purpose more widely felt than progress; people more positive that the things they do are worthwhile than how satisfied they are with their lives

Survey also hints at ‘new normal’ of commonplace unease even in healthy economic circumstances 

Younger age groups generally report a lesser sense of well-being than older age groups.

Dubliners report slightly greater sense of well-being than elsewhere        

Analysis by Austin Hughes and Shawn Britton

In the week before Christmas, it may be worthwhile stepping away from consideration of the usual assortment of economic statistics to ask whether or how current Irish economic conditions are delivering the intended (if indirect) goal of significant and broadly-based positive experiences of life in Ireland.

It is commonly agreed that conventional metrics such as GDP are not closely correlated with consumer well-being. While sectoral accounts data show aggregate Irish household income at an historic high point in mid-2019, an ongoing increase in the number of households means average disposable income per household is still slightly below its 2008 peak. In contrast the Survey of Income and Living conditions suggests average household disposable income is slightly higher now than in 2008 and various measures of poverty have fallen close to pre-crisis low-points. In the same vein, Central Bank estimates show aggregate household wealth at record highs but demographic change means the average Irish household’s net worth is still somewhat below 2007 levels.      

By its nature, well-being cannot be measured solely in money terms. The KBC Bank Ireland consumer sentiment index measures Irish consumers’ perception of their economic environment both in terms of their assessment of conditions in the Irish economy as a whole and their views of their personal financial circumstances. As the diagram below illustrates, the trend in consumer sentiment has been closely correlated with that in consumer spending through the past two decades.

The sentiment index provides a measure of changes, both current and expected, in the economic and financial conditions facing Irish consumers but it is focused on these particular elements rather than the broader concept of consumer well-being.

Measuring well-being from an economics perspective, however, is far from straightforward, but it shares some key characteristics with barometers such as consumer confidence measures. The subjective sense of well-being is somewhat different to metrics such as the United Nation’s Human Development Index, which combines data on life expectancy, years of education and income per person to arrive at one composite and objective measure of factors enhancing outcomes for a country’s population. The recent UN HDI report placed Ireland 3rd of 189 countries in its global ranking for 2019. Significant as the elements of the HDI metric are to economic development, they may not adequately or accurately capture the priorities a country’s population see as critical to its well-being. 

Eurostat produce a number of measures of personal well-being that provide subjective measures of satisfaction with life, financial circumstances and relationships. However, we wanted to avoid being prescriptive in terms of suggesting a particular order of specified factors were critical to well-being.

In an effort to arrive at a somewhat broader perspective on Irish consumers’ sense of their well-being, we adopted a format used by the United Kingdom’s Office for National Statistics in their ‘Personal well-being in the UK’ survey. In November 2019 (as a supplementary section in the KBC Bank consumer sentiment survey), we asked Irish consumers four questions covering satisfaction with their life at present, the extent to which they feel the things they do are worthwhile and the degree of happiness and anxiety they felt during the past three months.

From responses to these four questions, we construct a composite measure of well-being that captures elements of progress, purpose, pleasure and pain. However, we think the distribution of responses across Irish consumers to each of the questions asked and demographic factors that may be influencing those variations are of more importance than the summary numerical measure we produce.

We would also emphasise that while any measure of well-being should capture perceptions that go well beyond the immediate economic environment, consumers’ assessments are unlikely to be  entirely divorced from current economic conditions. At present, Irish consumers are viewing potentially substantial threats to their financial future from a range of developments, most notably Brexit, in circumstances where significant financial and psychological scarring from the financial crisis persists. These considerations might suggest Irish consumers might not assess their current well-being as favourably as very positive macroeconomic statistics might imply. 

Let’s discuss the main findings further:

1. Irish consumers are broadly but only moderately positive in their assessment of their well-being at present. Our summary metric has Irish people ranking their current well-being at 5.8 out of 10. More importantly, this ‘average well-being score’ conceals wide variations in Irish consumers’ assessment of their lives at present. While a notable 28% of responses reflect very positive views, a material 13% reflect very negative views, implying a small majority (amounting to 58% of responses) that see their circumstances as neither particularly favourable or unfavourable. In turn, this suggests that, at least in terms of their perceptions, significant numbers of Irish consumers can be experiencing markedly different circumstances at present.       
2. The area of most positive responses in the survey related to consumers’ sense that what they are doing is worthwhile whereas the area of greatest negativity concerned the amount of unease consumers felt in the past three months. It is unclear whether this reflects particular nervousness around Brexit risks or more broadly based concerns. These results might suggest consumers face difficulties reconciling what they see as the intrinsic worth of what they are doing and its place in an increasingly uncertain world. In a sense, this echoes a recurrent theme of sentiment survey results that suggests consumers feel somewhat detached from  the very positive economic news they hear and very vulnerable to the economic threats they see.
3. How well you feel is not determined by whether you are a man or woman but it is often dependent on how old you are, how comfortable your financial circumstances are and where you live.  Variations in Irish consumers’ sense of well-being is not significantly affected by gender but is notably influenced by age and income.   

Life Satisfaction

Following the format of the UK Household Wellbeing Survey, the first well-being question Irish consumers were asked was ‘On a scale of 0 to 10, with 0 being the lowest and 10 being the highest, how satisfied are you with your life at present?’ Responses to this question gave a mean value of 6.1, modestly above the mid-point in an eleven point range. The diagram below shows the distribution of answers to this question. Some 31% of these were in the top three points on the scale (8, 9, 10) which we judge to be very positive while a notably smaller but significant 9% were in the lowest three rankings (0,1,2) which we would take to suggest a very negative assessment of consumers’ life satisfaction.  The main characteristics influencing responses were:

• The average score for life satisfaction increases by age. Those aged between 18 and 24 reported a mean happiness score of 5.4 while those aged 65 or older had an average happiness score of 7.3. Notably, the number of respondents who reported very positive views on life satisfaction increases steadily by age, from about 17% for those between the ages of 18 and 24 to 57% for those over 65. However, the proportion of those who reported very negative views remained relatively stable, from 9% for the youngest age group to 3% for the oldest age group. This suggests that the divergence between the young and the old on life satisfaction is driven by more positive views for older Irish persons and more mediocre outlooks for younger Irish persons.
• Those who are able to make ends meet with ease had an average score of 7.2 in terms of life satisfaction, much higher than the average score of 5.4 for those who are making ends meet with difficulty. There were similar proportions for those with very positive (18%) and very negative views (13%) for those making ends meet with difficulty. However, for those making ends meet with ease, the proportion of those with very positive views (52%) was nearly 17 times those with very negative views (3%).
• There was little differentiation in views on life satisfaction across the different regions of Ireland, but Dubliners reported a marginally higher score of 6.2 compared to the rest of Leinster and Munster (both at 6.0) and Connacht and Ulster (5.9)Purpose 
• The second well-being question consumers were asked was ‘ On a scale of 0 to 10, with 0 being the lowest and 10 being the highest, to what extent do you feel the things you do in your life are worthwhile?’ Responses to this question yielded a mean value of 6.5, marginally higher than that for question 1 but making this the most positive element of the survey. The more favourable tone of responses to this question was reflected both in a larger proportion of more positive scores (38% in the top three points of the scale) and a smaller proportion of negative scores (6% were in the bottom three rankings). Diagram 2 below shows the distribution of answers to this question. While the gap between responses to questions one and two is modest, it appears that purpose is felt more strongly than positive outcomes by Irish consumers at present.  Among the elements contributing to variability in answers to this question were:
• Positive views on what they do mattering increase as Irish people age. The average score for this question for 18 to 24 year-olds was 5.9 while those over 65 reported an average score of 7.5. Similar to the question on life satisfaction, the averages for younger and middle age groups was driven largely by more middling scores (nearly two-thirds of those aged 18 to 24 gave a score between 3 and 7) while the oldest age group had a majority reporting very positive views (57%).
• The majority of Irish consumers who report that they are making ends meet with difficulty have a comparatively lower score than those who are making ends meet with ease. While the margin between average scores narrowed somewhat on this question (with difficulty at 5.9 versus with ease 7.2), those making ends meet with ease had a majority of respondents with very positive views (52%), with just 2% reporting a very negative view. Meanwhile, less than a third (29%) of those making ends meet with difficulty had a very positive view while about one out of 10 (9%) had a very negative view.
• When it came to feelings on life purpose, Leinster excluding Dublin report the highest average score of 6.7. This was followed closely by Munster at 6.5 and Dublin at 6.4, and Connacht andUlster reporting the lowest average of 6.2

  
  Happiness

  The third well-being question consumers were asked was, 'On a scale of 0 to 10, with 0 being the lowest and 10 being the highest, on average, how happy have you felt during the past three months?’ Responses to this question yielded a mean value of 5.9, marginally below responses to other questions. The weaker result was due to both less frequent relatively positive scores (28%) and more frequent negative scores (11%) but is entirely consistent with responses to the slightly less emotive question 1. Diagram 3 below shows the distribution of answers to this question. These results are also consistent with the tone of the broader consumer sentiment survey that suggests little evidence of exuberance in Irish consumer thinking at present.  Among the elements contributing to variations in responses to this question were
• Views on happiness follow the same path as life satisfaction and feelings of actions being worthwhile and increase steadily as people age. However, unlike the previous two questions, more respondents aged 65 and over gave medium scores (between 3 and 7) than very positive scores (between 8 and 10).
• Similar to the previous two questions, those making ends meet with difficulty reported on average a lower score for happiness over the past three months when compared to those making ends meet with ease. While the majority of respondents for both groups reported scores in the medium range, 43% of those making ends meet with ease had very positive views compared to only 19% of those making ends meet with difficulty.
• In terms of happiness, all regions of Ireland reported similar average scores. Dublin had an average score of 6.0, followed closely by the rest of Leinster and Munster (both 5.9) and Connacht and Ulster (5.7).

• Anxiety

  The fourth and final question in the well-being survey asked ‘On a scale of 0 to 10, with 0 being the lowest and 10 being the highest, on average, how anxious have you felt during the past three months?’ Importantly, unlike the other elements of the survey, answers to this question move up the scale as responses become more negative. Responses to this question yielded a mean value of 5.5, slightly lower in absolute value than responses to other questions but suggesting that unease or anxiety is a broadly felt if not overwhelming feature of many consumers’ current experience. Significantly, as many as 26% of respondents reported more negative results than for any of the other questions, while just 16% responded with the lowest figures of 0, 1 or 2. Diagram 4 below shows the distribution of answers to this question.
• appear a surprising result, given the broad if modest positivity of the other elements of the well-being survey. However, this again chimes with results from the broader consumer sentiment survey that suggest even in circumstances of exceptionally low unemployment and rising household incomes and wealth, the mood of Irish consumers is very cautious. What is unclear is whether this reflects its positioning as a prominent feature of the ‘new normal’ or whether it is significantly driven by specific developments such as Brexit that resonate far beyond the usual vagaries of the economic cycle.  Among the more notable variations in this element of the survey were:
• Average unease or anxiety tends to decline as Irish people age. The mean score for 18 to 24  year olds was 6.6 while it was 4.1 for those aged 65 or older. Importantly, of all the different aspects of Irish people that we considered, which include factors such as age, education level, and income, we found that those aged 65 and older had the lowest average score for anxiety while those aged 18 to 24 years old had the highest average score.
• Unsurprisingly, those who are making ends meet with more difficulty reported higher anxiety on average than those making ends meet with ease. This underlines the impact of continuing financial fragility among Irish households.
• Persons living in Munster on average reported a higher score of anxiety at 5.7, followed by the rest of Leinster and Connacht and Ulster (both 5.5) and Dublin (5.3).

• Conclusion

  So what can we say about personal well-being and its link to the economy? We know that conventional metrics like GDP don’t adequately capture the economic circumstances of most households. As illustrated above, sentiment measures offer some bridge between objective indicators like consumer spending and subjective judgments on economic conditions. This note attempts to put some Irish perspective on an increasing international focus on measures of well-being as an important supplement to other indicators of economic performance.
  
  
  
  
  The analysis above was carried on data that formed a supplementary section of the KBC Bank consumer sentiment survey for November 2019. The KBC Consumer Sentiment Survey is a monthly survey of a nationally representative sample of 1,000 adults. Since May 2019, Core Research have undertaken the survey administration and data collection for the KBC Bank Ireland Consumer Sentiment Survey.