Consumer sentiment plunges in February

Consumer sentiment fell sharply in February as personal finances remain under pressure and householders worry about their jobs.

The KBC Bank Ireland/ ESRI Consumer Sentiment Index recorded a 7.5% fall in February as the index fell to 59.4 from the four-month high of 64.2 in January.

KBC Bank Ireland chief economist Austin Hughes, said the consumer remains in a difficult place, and monthly changes in the index have been volatile, but said a decline in the three month moving average from 59.2 to 57.8 suggests there has been some weakening in the underlying trend in consumer sentiment of late.

“Pressure on household finances is significant and there is considerable uncertainty about the current trajectory of the Irish economy even if there have been some encouraging developments of late.

“In these circumstances, there is little likelihood that a pronounced ‘feel good’ factor will develop anytime soon. However, Irish consumers may gradually become more attuned to positive economic news and the ‘fear factor’ should gradually decrease provided there are no renewed setbacks to the global economy.

“In these circumstances, an extended and uneven turnaround in Irish consumer sentiment and in household spending is about all that can reasonably be expected,” he said.

Kevin Timoney of the ESRI, said all categories of the index fell relative to January, with the largest decline registered for unemployment expectations.

“Though much improved relative to a year ago, consumers became more pessimistic about their expectations for unemployment in February, following an improvement in January. The promissory note deal was announced roughly half way through the survey period.

“The announcement of the deal would appear to have had some positive impact, with a preliminary analysis of responses showing an improvement in sentiment after the deal. We await the March results to see if the impact on sentiment is sustained.”

Mr Hughes said the largest drop in sentiment was seen in relation to the outlook for jobs.

“It should be noted that this was also the strongest element of the January results when the best reading since Jun 2007 was reported. So, last month’s decline likely reflects a correction of an excessively strong January number.”

He said consumer thinking over employment prospects may have been heavily influenced by a couple of high-profile job loss announcements.

“Only 11% of consumers envisage an improvement in their personal finances while 58% expect a further deterioration. As is usually the case when post-Christmas sales end and new year bills arrive, consumers also become more negative about the buying climate in February.”

He said there is little to suggest any dramatic improvement in household spending power in the near term. “If confidence is to improve it will probably require a more stable global economic backdrop and increased confidence that a modestly improving Irish economy will start to deliver a gradual increase in employment and in living standards in coming years.”

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