Consumer confidence continues to rise as it hits highest level since 2001

CONSUMER optimism continues to rise, hitting its highest level since November 2001.

While the latest measure of consumer sentiment strengthened, the numbers of people concerned about the immediate financial and economic outlook disimproved for the second successive month.

The IIB Bank/Eonomic and Social Research Institute consumer sentiment index rose to 99.6 in October from 99.5 in September.

October’s reading was the strongest since June 2001, while the backsliding on the current situation appeared to be contradicting the future optimism reflected in the survey.

IIB chief economist Austin Hughes sees no contradiction in the two outcomes. The bottom line, he says, is that spending power is still relatively weak compared to where it was in the past. On the other hand, the jobs market has strengthened while the housing market has continued to boom, leading to growing future confidence, he said. “We think this dichotomy is a fairly reasonable representation of the current state of the Irish economy and the fortunes of the consumer in particular,” he said.

In the context of the findings, Mr Hughes said the “key task” facing Finance Minister Brian Cowen “is to frame a December

Budget that doesn’t disappoint households while avoiding excesses that might require a tougher Budget, twelve months later.”

Mr Cowen will have to tread warily, however, and avoid trying too hard to please the electorate,” said Mr Hughes.

“A Budget that is lacking in generosity could leave the Irish economy and

Mr Cowen’s political fortunes on a weaker trajectory in early 2005,” he said.

All in all, Mr Hughes says the consumer response suggests the outlook for the economy is far from clear.

Until that changes, sentiment will be circumspect and the feel-good factor will stay weak despite belief among respondents that the outlook generally is very positive in the medium term.

Retailers appear to be taking a higher margin following protracted summer sales that they used to help clear stocks ahead of the winter season. In that context, Mr Hughes expects consumers to bide their time at least until after the Budget.

“We shall not expect an explosive improvement in retail sales until Irish consumers have figured out precisely what Mr Cowen’s Budget measures will mean for their incomes in 2005,” he said.

Another point suggesting strong underlying confidence is reflected in the persistent growth in personal lending.

If consumers were seriously worried they would not be borrowing at the rate they are, said Mr Hughes, who added the good Exchequer returns have been a key factor in consumers’ optimism.