Consumer index shows broad economic optimism yet to hit home

Irish consumer sentiment appears to be holding steady but growing optimism about the broad outlook for the economy and jobs has been offset by caution about household finances, the latest ESRI/KBC Consumer Sentiment Index has revealed.

The index covering May points towards “a fairly healthy upturn in the economy as a whole” but highlights a disconnect between “very positive ‘macro’ conditions and a consumer who remains concerned about a lack of improvement in household spending power”.

The index slipped fractionally to 98.5 in May from 98.7 in April with the three month moving average edging slightly higher in May.

This suggests that confidence is not draining away but consumers “need to see a more tangible improvement in their own financial circumstances or at least a very real prospect that this will occur before long if the sentiment index is to move materially higher”.

Of the five main elements of the Irish consumer sentiment index, three posted monthly declines which emphasises a persistent divergence between the challenges faced by Irish consumers and the positive news they are hearing and reading about the broader economy.

The three components that declined relate to consumers’ own financial circumstances and spending plans while the two that improved relate to the outlook for the economy and for jobs.

“We cannot be sure exactly what caused consumers to be a little more downbeat about their personal finances in May but several possibilities suggest themselves. It could be the case that the roll-out of water charge bills served as a painful reminder of continuing pressures on household spending power,” the report says.

It also points to an “ongoing recovery in oil prices” and “significant increases in some elements of their living costs of late such as motor insurance”.

In contrast to unfavourable ‘micro’ developments, the news flow on the ‘macro’ environment facing Irish consumers remained favourable through the May survey period.

A number of upbeat commentaries including new forecasts from the EU commission highlighting Ireland's economic growth rate as likely to be the strongest in Europe this year consolidated the view that recovery is building considerable momentum.

A range of new job announcements of late confirmed that the improvement now underway in the Irish economy is not confined to measures such as GDP that are somewhat removed from the everyday experience of the average consumer.

May results showed half of those surveyed expect a further improvement in the jobs market in the next twelve months- the best reading in fourteen years. Yet the message from responses to survey questions on the immediate circumstances of the average consumer is that reassuring though these ‘macro’ gains might be, any ‘trickledown’ effects to household spending power are still very limited.

The report emphasised that the Irish consumer is not unique in facing difficulties trying to make sense of frequently contradictory influences on their wellbeing at present.

In May, the most comparable measure of US consumer sentiment fell to a six month low that seems to reflect concerns that a now well established upturn in the ‘States is not delivering a clear improvement in living standards. In the Euro area, consumer confidence fell for the second month in a row while UK consumers were at their gloomiest in a year in May.