Institutional Sector Accounts Non-Financial Quarter 3 2021

The household saving rate in the third quarter of 2021 was 17%. This is unusually high, almost twice the long term average rate. This elevated proportion of income not consumed has been a feature of the economy since the COVID-19 pandemic began. This presentation of the sector accounts looks at two questions: how is the economy faring compared to the pre-COVID economy, and how is it faring during the pandemic? We have seen throughout the period of restrictions, overall household income continuing to rise, while spending has not kept pace. So compared to the long term average, the saving rate has been higher during the pandemic and this quarter is no exception. In July to September of 2021, household consumption continued its recovery from its low point in 2020, and the saving rate declined for the second successive quarter. 

The Retail Sales Index shows there was growth in spending on cars, food, clothes, shoes, pharmaceuticals and cosmetics since the third quarter of 2019. From the Consumer Price Index we can see that some of this increase was due to higher prices being paid, with overall prices around 2% higher than in 2019-Q3. Sales in bars remained depressed, and books and stationery were also below their 2019-Q3 level.

Workers' earnings increased in the quarter as enterprises re-opened. Total compensation of employees was above the 2019-Q3 level, the last equivalent quarter before the pandemic. All sectors except arts and entertainment had higher total wages than in the same quarter of 2019. Compared to 2020, all sectors were up (except for a slight decrease in compensation of employees in agriculture). There was particularly strong growth in the retail and hospitality sectors over 2020, which had been most severely affected by restrictions last year.

Compensation of employees was supported by Government subsidies. These subsidies, which are paid to employers as the Employment Wage Subsidy Scheme (EWSS) and then to workers, were €1.1bn in the quarter.

The Government also continued to pay the Pandemic Unemployment Payment (PUP) in the quarter, and total social protection payments (D.62, which includes the PUP) received by households exceeded €9bn. Analysis of the administrative data shows that incomes generally increased for those not receiving the PUP or EWSS, while those in receipt of these payments generally had lower incomes than they did before the pandemic.

As household gross earnings increased, so too did their income tax (mainly PAYE) and social contributions (mainly PRSI). Income tax (D.5) paid was €1.3bn higher in this quarter than in 2020-Q3 and social contributions were €0.7bn higher.  

Overall then, household incomes were higher than in 2019-Q3 and 2020-Q3, because salaries were higher for those who continued to work throughout the pandemic, and government intervention supported those who were not working. This elevated level of income, means that while spending returned to around the pre-COVID level, there was still more available for saving, raising the saving rate above its level before the crisis.

The largest proportion of the extra saving was added to deposits in Irish banks. Out of total saving of €5.8bn, Central Bank data shows an increase in deposits in Irish credit institutions from households of €2.8bn in these three months. Most of these deposits are receiving low rates of interest and are available immediately to households to use. Saving also went into pension funds and paying off mortgages and other loans. Capital investment (fixed capital formation, P.5) in new housing and improvement to dwellings was largely unchanged on this period last year.

The seasonally adjusted data series which includes Gross Disposable Income, Personal Consumption of Goods and Services and Gross Saving of the Household incl. NPISH sector is available on PxStat. Only the most significant transactions are shown in the table for each sector in this release. The entire unadjusted series for all variables published in this release are also available at the same link. See Background Notes for definitions of the terms used.

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