Consumer sentiment rose modestly in September as drop in oil prices and a number of new job announcements combined to produce the first consecutive monthly increases in over a year.
The consumer sentiment index compiled by IIB Bank and the Economic and Social and Research Institute (ESRI) increased from 43.4 in August to 45 this month, but while it is an improvement, confidence remains very low when compared with the reading of 74.3 reported in September 2007.
The index, compiled from a survey of 900 people during the first two weeks of this month, suggests consumers remain extremely cautious "but are still open to good news" according to Austin Hughes, chief economist at IIB. However, he said the rise in confidence was still a surprise given current economic conditions.
He attributed the increase in the prospects for the Irish economy this month to three factors; moves by the US government to support the financial system, including the nationalisation of Freddie Mac and Fannie Mae; the bringing forward of the Budget to October 14th; and a number of new job announcements.
Another factor was the decline in oil prices, which have dropped from $121 per barrel in August to around $101 this month.
"Not alone will this directly ease the squeeze on the spending power of Irish households, but the associated impact on inflation makes an ECB interest rate cut more likely if still some distance away," Hughes said.
He said the rise had an important caveat of coming from historically low levels. Consumer sentiment hit a record low in July.
He also noted a divergence in the historic and forward-looking assessments of household finance, with consumers more pessimistic in assessing the last 12 months and increasingly optimistic for the future.
Hughes suggested this could indicate a hope by consumers that the squeeze on spending power over recent years may be coming to an end.
Another tentative conclusion inferred from the data is that the recent dramatic weakening in confidence and consumer spending of late "owe a good deal to prudence as well as to panic".
David Duffy, economist at the ESRI, said: "The index shows an improvement in consumer sentiment in September due to an improvement in consumer's expectations for the next 12 months. Although sentiment has improved this should be viewed as tentative. Consumers continue to be concerned about current conditions."
