Sunny July gives consumer sentiment a temporary lift

Consumer sentiment recovered in July to its highest level since March as summer sales and holidays boosted spending plans, according to the latest index from KBC Bank Ireland and the Economic and Social Research Institute.

Fine weather last month may also have exerted a “modest” positive influence on the mood of Irish consumers, said KBC Bank Ireland chief economist Austin Hughes.

An analysis of the index over the years suggests temperatures need to climb about between three and four degrees above the seasonal norm to produce a one-point rise in consumer sentiment.

“Our calculations imply that, in most circumstances, weather isn’t a key driver of the economic mood of Irish consumers,” Mr Hughes said. “However, exceptionally favourable weather conditions like those experienced in Ireland of late may well have caused more consumers to see their economic glass as half full rather than half empty.”

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The bad news is that this effect is likely to be only temporary. The likelihood is that a return to more normal weather conditions will prompt a “somewhat cooler” assessment of the economic climate by Irish consumers, Mr Hughes said.

The index rose to a reading of 107.6 in July from 102.1 in June, which represented the strongest monthly increase since January and the highest level since March.

There was a sharp increase in purchasing plans last month, reflecting the summer sales, the advent of the new 18-2 car registration plate and holiday spending. This influence on the index is also likely to reverse in the coming months and could weigh on sentiment in the autumn.

The second-largest improvement in the July survey was in consumers’ assessments of how their household finances had evolved over the past year. Some 29 per cent of consumers feel their situation has improved, compared with 18 per cent who believe theirs has worsened.

Limited gains

This was the best reading for household finances since February, but still suggests only a “modest and uneven” improvement for households across the Irish economy, Mr Hughes said, with most Irish consumers seeing and expecting only limited gains in their living standards.

In spite of a large number of new job announcements and encouraging employment data for the survey period, Irish people were only slightly more positive about the jobs outlook than they were a month earlier.

“Our sense is that many consumers may be struggling to reconcile reports of buoyant job market conditions with the reality of modest pay gains and ongoing threats to job security,” he said.

Consumers in Ireland were more upbeat in July than elsewhere in the euro zone, where confidence was unchanged on the previous month. In the UK, confidence fell to its weakest level since February amid concerns about political management of the Brexit process.

Despite the lift in sentiment, Brexit remains “a major worry” for Irish consumers, Mr Hughes said, while increasing global trade tensions may also have prompted a cautious assessment of the prospects for the Irish economy.