Consumers adopt wait and see policy on prospects for economy

CONSUMERS have adopted a wait and see approach to the current economic climate, the latest IIB Bank/ESRI Consumer Sentiment Index indicates.

The index rose fractionally this month to 97.4 from 97.3 in April, but IIB Bank chief economist Austin Hughes said this change is not large enough to be significant. “These results suggest that while the underlying trend in consumer sentiment remains broadly positive, consumers are now in a ‘wait and see’ mode as they attempt to make sense of apparently contradictory economic signals. This stance may dampen growth in household spending in coming months,” he predicted.

And David Duffy of the ESRI noted that the forward-looking component, the expectations index, was down in May to 89.2, from 91.9 in April but is above the reading of 85.5 recorded in May 2004.

“Although consumers have become more positive in their perceptions of the current economic environment, this has been offset by concerns about the future. The decline in the forward-looking index is due to a much more negative perception by consumers of the outlook for the labour market. Nearly 50 per cent of consumers expect the unemployment rate to rise over the next 12 months,” he added. Mr Hughes said that a number of high profile job loss announcements early in the month weighed on sentiment.

“The May data reveal that consumers were more pessimistic about the outlook for jobs than at any time in the past year. It should be acknowledged that the broadly stable Irish consumer sentiment reading is notably better than similar indicators for other countries, which weakened further in May.”

Mr Hughes also said one negative element of the May survey was a slight drop in consumers’ assessment of their own personal financial situation in the next twelve months.

“We think this partly reflects a risk premium attaching to increased risks of job loss. It probably also owes something to a further increase in oil prices during May. These unpleasant realities and the persistence of very modest increases in household incomes may have disappointed Irish consumers who might have expected that very upbeat economic forecasts would have translated into a markedly stronger trend in their spending power.”