Last week, a young couple were sitting at the table next to me on the terrace of a Monkstown restaurant. The sun shone, Mediterranean strong. The street was packed.
The gentrification of this part of the world has been quite startling. Not so long ago, this place was home to tyre fitters, exhaust repair works, undertakers, lock-ups and second-hand Fiat sales rooms. Today it is as close to the Upper East Side as South Dublin gets.
The couple, both immaculately dressed – he with calf-tattoo and skin-fade, she with palm-thick eyelashes and freshly lacquered nails – chatted for a bit, interrupted (obvs) by their phones. As the Love Islanders were served by immigrant waiters, they both fell silent and with extraordinary intensity, proceeded to photograph their cocktails, starters, main courses, sides and coffees from all angles.
Pulitzer Prize for Photography maybe not, but the level of commitment to sharing their dinner with the rest of the world was quite remarkable #dinner #outdoordining #summer #happy #beautiful #steak #fortunate #thinkofthechildren #blessed #love #tbt
Meanwhile at the next table, a middle-aged couple, him full gammon, her daybreak paddleboarder, both a few sherbets to the good, moaned about not being able to get a decent plumber.
Spending has moved on from spending on big-ticket items, and now we are spending money on having fun, and doing things that we want to tell the world about
These two suburban images tell us all we need to know about the nature of the recovery.
Our Love Islanders and their Instagramming are an important economic signal. Instagram captures something significant in the economic cycle, as it suggests we are moving into the Instagram phase of the recovery. The first phase of the recovery was the "scarce plumber" stage. People bored with sitting at home for months took to home improvement with gusto in early spring, booking tradesmen of all sorts during those endless lockdown weeks. Now scarce plumber stage is giving way to the Instagram phase.
The Instagram phase of the economic cycle is when we start spending money on things we photograph. Spending has moved on from spending on big-ticket items, and now we are spending money on having fun, and doing things that we want to tell the world about. People rarely Insta their new fridge but they do Insta nights out with mates, drinks, foreign holidays, new clothes, tiramisu and all sorts of other activities signalling, I’m having the craic.
Using Instagram as a leading indicator is something a former colleague of mine, Paul Donovan (chief economist at the Swiss Bank UBS) explained on my podcast last week. This recovery is like no other because what we just experienced was not a recession in the traditional sense of the word. Therefore, trying to place the upswing within the framework of the typical “recession to recovery” pathway is not that helpful.
We didn’t have a recession; we had a lockdown, which is why this column referred to the past 18 months as a “Pandession” – a recession (halt in activity) brought about by a pandemic (a forced shutdown).
Once we get the terminology right, or at least slightly more precise, we can plot the evolution from here. The implication is that the economy is about to take off, unemployment will fall rapidly, consumer spending will roar, savings will be spent, and all sorts of Covid-inspired “side hustles” will lead to a surge in the creation of new companies.
We are about to move into an entrepreneurial upswing, led by various micro-businesses, the genesis of which was many months spent sitting on couches in lockdown trying to figure out what to do next, dreaming up new ideas and applying what was learned in lockdown to the real world.
Another emerging trend over the next year will be a steep increase in the rate that we change jobs – it will accelerate faster than ever. Ironically, lockdown has made the average employee more adventurous in terms of career.
Trends in the United States right now are highly instructive as to where things are going. What happens in the US is typically replicated in English-speaking Europe within a matter of quarters. The first thing to appreciate is that aggregate incomes didn’t fall in the lockdown; while they fell in certain sectors, in the aggregate they did not. This is largely because the State paid us to stay at home.
For a large group (most but not all), income remained the same, but people didn’t spend because they were locked up, and therefore savings went up dramatically. Now people are spending this money. From a macroeconomic perspective, this means we should stop agonising about the Government’s budget deficit and national debt levels.
As we spend, tax revenues will rise, Government spending will fall, and the budget deficit will narrow automatically. We call this process “automatic stabilisers” in economics. With an ECB commitment to keep interest rates low, this means there will be no financing problems or sudden lurch in capital flows. Spending will drive income and growth rates and the overall debt position expressed as a percentage of income, will also fall by itself. The message on the State’s macro budgetary position should be “Chill out”.
Ireland is a profoundly open economy, so what happens elsewhere is critically important to us. Here's a snapshot. In the US, GDP increased 6.4 per cent in the first quarter of 2021, leaving American economic output just 0.9 per cent shy of its pre-pandemic levels. By contrast, the euro zone has further to go.
Consider the fortunes of <a class="search" href='javascript:window.parent.actionEventData({$contentId:"7.1213540", $action:"view", $target:"work"})' polopoly:contentid="7.1213540" polopoly:searchtag="tag_company">LVMH</a>, owner of 'braggy' products from Louis Vuitton and Dior to Moët & Hennessy. It recorded revenue of €14.7 billion in the second quarter of this year – about 14 per cent higher than the same period in 2019
The IMF has revised its annual US growth forecast up to 7 per cent for 2021 and 4.9 per cent in 2022. This is expected to help push global growth up to 6 per cent for 2021. Consumer confidence index ticked up to 129.1 in July, the highest level since February 2020 when the pandemic was kicking off. Record numbers are handing in their notice (2.7 per cent of total employment), 48 per cent of businesses were struggling to fill positions, and over a third have raised wages.
The US consumer has already rotated from the "cars and kitchens" phase to the Instagram and showing off phase. Consider the fortunes of LVMH, owner of "braggy" products from Louis Vuitton and Dior to Moët & Hennessy. It recorded revenue of €14.7 billion in the second quarter of this year – about 14 per cent higher than the same period in 2019. The company's operating margin recorded a new high of 26.6 per cent in the first six months of the year and again the LVMH stock price has risen 30 per cent this year to an all-time high of €673. We are entering the Roaring Twenties.
In Ireland, retail sales recorded strong annual growth in value terms of 13.9 per cent and the volume of retail sales in bars recorded a 553 per cent monthly increase in June.
We are spending our pent-up savings and smartphones are recording it all. As we move into the Instagram phase, expect feeds to be dominated by brunch, mimosas and Photoshopped SUPs (stand-up paddleboarders) at dusk and dawn.